ASSET PURCHASE AGREEMENT
Dated as of June __, 1998
by and between
VDI MEDIA,
as Purchaser
and
ALL POST, INC.,
as Seller
Execution Copy
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of June __, 1998, by and between VDI Media, a California corporation
("Purchaser") and All Post, Inc., a California corporation ("Seller").
R E C I T A L S
A. Purchaser desires to purchase from Seller, and Seller desires
to sell, convey, transfer, assign and deliver to Purchaser, certain assets of
Seller upon the terms and subject to the conditions of this Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and the provisions
set forth below, and subject to the terms and conditions set forth herein,
the parties agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
indicated below:
"ACCOUNTS RECEIVABLE" shall mean the accounts, notes and other
receivables of Seller related to the Business.
"ACCOUNTS PAYABLE" shall mean those accounts payable of the Seller
related to the Business which are Assumed Liabilities.
"ACTION" shall mean any action, claim, suit, litigation, proceeding,
labor dispute, arbitral action, governmental audit or inquiry, criminal
prosecution, investigation or unfair labor practice charge or complaint.
"AFFILIATE" shall mean, in respect of any specified Person, any other
Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such specified Person or if such specified Person bears
a familial relationship with such other Person.
"AFFILIATED PARTIES" shall have the meaning set forth in Section 10.2.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"AGREEMENTS NOT TO COMPETE" shall mean the agreement in substantially
the form of
Exhibit A hereto.
"ANCILLARY AGREEMENTS" shall mean the Deed of Trust, the Hollywood
Lease, the Olive Lease, the Assumption Agreement and the Secured Indemnity
Agreement, substantially in the forms attached hereto as Exhibits B, C, D, F,
and G, respectively.
"ASSETS" shall mean all of the right, title and interest in and to the
assets described on Exhibit E hereto, and all of Seller's right, title and
interest in the following, in each case only to the extent related to the
Business:
(i) all Accounts Receivable and contingent rights relating
thereto (whether current or noncurrent), refunds, deposits, advances,
all advance payments, prepaid expense items and credits relating to the
Business, prepayments or prepaid expenses and all other receivables
arising out of the Business;
(ii) all Contract Rights;
(iii) all Personal Property Leases;
(iv) all Books and Records;
(v) all Proprietary Rights;
(vi) all computers and software;
(vii) all tape stock on hand on the Closing Date;
(viii) the name "ALL POST, INC." and all variations thereof;
(ix) all supplies, sales literature, promotional literature,
customer, supplier and distributor lists, sales art work, display units,
telephone and fax numbers and purchasing records related to the Business;
(x) all rights under or pursuant to all warranties,
representations and guarantees made by suppliers in connection with the
Assets or services furnished to Seller pertaining to the Business or
affecting the Assets;
(xi) all claims, causes of action (other than the Barsotti
Action and the Compact Storage Action), choses in action, rights of
recovery and rights of set-off of any kind related to the Assets or the
Assumed Liabilities, against any person or entity, including without
limitation any liens, security interests, pledges or other rights to
payment or to enforce payment in connection with products delivered by
Seller on or prior to the Closing Date except to the extent that any of
the foregoing relate to any of the Excluded Liabilities; and
(xii) all of the Business as a going concern and the goodwill
pertaining thereto.
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"ASSUMED LIABILITIES" shall have the meaning set forth in Section 2.2.
"BALANCE SHEET" or "BALANCE SHEETS" shall have the meaning set forth
in Section 4.7(a).
"BARSOTTI ACTION" means the litigation between Seller, Westar Capital
Associates and Scott Barsotti Case Number EC 022591, Superior Court of the
State of California for the County of Los Angeles, including any related
cross-claims and complaints.
"BOOKS AND RECORDS" shall mean (a) all records, files and lists of
Seller pertaining to the Assets, (b) all records and lists, customers,
suppliers, vendors or clients of Seller pertaining to the Business and (c)
all books, ledgers, files, reports, plans, drawings, merchandise and sales
promotion literature and promotional and advertising materials, all
catalogues, research material, management information systems, software,
technology and specifications and operating records of every kind maintained
by Seller pertaining to the Business.
"BUSINESS" shall mean the following business lines of Seller:
duplication, vault storage, audio layback, audio production, editing,
telecine, compression and ancillary services, but in no event shall
"Business" include the Cinetech Business.
"BUSINESS DAY" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in the City
of Los Angeles.
"CINETECH BUSINESS" shall mean the business, as of the date hereof, of
Post Optical Services, Inc., doing business as Cinetech, which is limited to
the preservation and restoration of film and audio elements.
"CLOSING" shall have the meaning set forth in Section 3.1.
"CLOSING DATE" shall mean (a) June __, 1998 or (b) such other date as
Purchaser and Seller shall mutually agree upon.
"COBRA" shall have the meaning set forth in Section 4.15(e).
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPACT STORAGE ACTION" means the litigation between Seller and
Compact Storage Systems, Inc. ("Compact Storage vs. All Post, et al") Case
Number EC024064, Superior Court, North Central District, including any
related cross-claims and complaints.
"CONTRACT" shall mean, other than any Lease, any agreement, contract,
note, loan, evidence of indebtedness, purchase order, undertaking, obligation
or commitment to which Seller is a party or is bound and which relates to the
Business or the Assets, whether oral or written, including, without
limitation, purchase commitments for materials and other services, whether or
not entered into in the ordinary course of business, relating to the
Business, Seller's rights under
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any confidentiality agreements relating to the Business (if and to the extent
assignable), all unfilled sales orders, invoices, contracts and commitments
with customers relating to the Business, all unfilled purchase orders,
invoices, contracts and commitments with suppliers relating to the Business.
"CONTRACT RIGHTS" shall mean all of Seller's rights and obligations
under the Contracts, excluding any such Contracts evidencing Financing
Obligations.
"COPYRIGHTS" shall mean registered copyrights, copyright applications
and unregistered copyrights.
"COURT ORDER" shall mean any judgment, decision, consent decree,
injunction, ruling or order of any federal, state or local court or
governmental agency, department or authority that is binding on any person or
its property under applicable law.
"DAMAGES" shall have the meaning set forth in Section 10.2.
"DEFAULT" shall mean (a) a breach of or default under any Contract,
Lease or Permit, (b) the occurrence of an event that with the passage of time
or the giving of notice or both would constitute a breach of or default under
any Contract, Lease or Permit, or (c) the occurrence of an event that with or
without the passage of time or the giving of notice or both would give rise
to a right of termination, renegotiation or acceleration under any Contract,
Lease or Permit.
"DEED OF TRUST" shall mean that certain Deed of Trust, dated as of the
Closing Date, by Seller, as Trustor, to First American Title Insurance
Company, as trustee, for the benefit of Purchaser, as beneficiary, securing
Seller's indemnity obligations set forth in the Secured Indemnity Agreement,
in substantially the form of Exhibit B hereto.
"DISCLOSURE SCHEDULE" shall mean a schedule executed and delivered by
Seller to Purchaser as of the date hereof which sets forth the exceptions to
the representations and warranties contained in Article IV hereof. Unless
otherwise specified, each reference in this Agreement to any numbered
schedule is a reference to that numbered schedule which is included in the
Disclosure Schedule.
"DISCONTINUED OPERATIONS" shall mean any businesses or operations
previously sold or otherwise disposed of by Seller and any ongoing
indemnification obligations in connection therewith.
"EARN-OUT" shall have the meaning set forth in Section 2.4(a)(ii).
"EARN-OUT PERIOD" shall mean the period commencing on the day after
the Closing Date and ending on the first anniversary of the Closing.
"ENCUMBRANCE" shall mean any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily
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incurred or arising by operation of law, and includes, without limitation,
any agreement to give any of the foregoing in the future, and any contingent
sale or other title retention agreement or lease in the nature thereof.
"ENVIRONMENTAL LIABILITIES FOR PRE-CLOSING MATTERS" shall mean any and
all liabilities, damages, losses, costs and expenses arising from any
Pre-Closing Environmental Matters, including, without limitation, costs of
investigation, cleanup, removal, remedial, corrective or response action, the
costs associated with posting financial assurances for the completion of
investigation, cleanup, removal, remedial, corrective or response actions,
attorneys' fees, the preparation of any closure or other necessary or
required plans or analyses, or other necessary reports or analyses submitted
to or prepared for regulating agencies.
"ENVIRONMENTAL PROTECTION LAWS" shall mean all federal, state, local
and foreign laws, statutes, regulations having the force and effect of law,
permits, court decrees, judgments, injunctions and written orders concerning
(i) public health and safety relating to exposure of humans to toxic or
hazardous substances or otherwise relating to Regulated Substances or
(ii) pollution or protection of the environment or natural resources, including,
without limitation, the Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA") (42 U.S.C. Section 9601 ET SEQ.); the Hazardous
Materials Transportation Act (49 U.S.C. Section 1801 ET SEQ. ); the Resource
Conservation and Recovery Act ("RCRA") (42 U.S.C. Section 6901 ET SEQ.); the
Clean Water Act (33 U.S.C. Section 1251 ET SEQ.); the Safe Drinking Water Act
(14 U.S.C. Section 1401 ET SEQ.); the Toxic Substances Control Act (15 U.S.C.
Section 2601 ET SEQ.), the Federal Insecticide, Fungicide, and Rodenticide
Act (7 U.S.C. Section 136 ET SEQ.), the Clean Air Act (42 U.S.C. Section 7401
ET SEQ.); the Emergency Planning and Community Right-to-Know Act (42 U.S.C.
Section 11001-11005, 11021-11023, and 11041-11050); the Porter-Cologne Water
Quality Act (California Water Code Section 13000-13999.19); the Hazardous
Waste Control Law (California Health & Safety Code Section 25100-25250.25);
the Safe Drinking Water and Toxic Enforcement Act (California Health & Safety
Code Section 25249.5-25249.13); California Health & Safety Code
Section 25280-25299.81 (regarding Underground Storage of Hazardous Substances)
and Section 25500-25545 (regarding Hazardous Materials Inventories and Emergency
Plans); the Hazardous Substance Account Act (California Health & Safety Code
Section 25300-25393); and California Health & Safety Code Section 39000-44384
regarding Air Resources; in each case including the regulations promulgated
thereunder, including, without limitation, the regulations promulgated by the
South Coast Air Quality Management District; each as supplemented or amended
from time to time.
"EPA" shall mean the United States Environmental Protection Agency, or
any successor United States governmental agency.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time.
"ERISA AFFILIATE" shall mean with respect to any person (a) any
corporation that is a member of a controlled group of corporations, within
the meaning of Section 414(b) of the Code, of which that person is a member,
(b) any trade or business (whether or not incorporated) that is a member of a
group of trades or businesses under common control, within the meaning of
Sec-
5
tion 414(c) of the Code, of which that person is a member, and (c) any member
of an affiliated service group, within the meaning of Section 414(m) and (o)
of the Code, of which that person or any entity described in clause (a) or
(b) is a member.
"ESCROW AGREEMENT" shall mean the agreement relating to the Holdback
Escrow referred to in Section 19 of the Deed of Trust among Purchaser, Seller
and the escrow agent named therein.
"EXCLUDED LIABILITIES" shall have the meaning set forth in Section 2.3.
"FACILITIES" shall mean all plants, offices, manufacturing facilities,
stores, warehouses, improvements, administration buildings, and all real
property and related facilities which are used or held for use in connection
with the Business.
"FINANCIALS" shall have the meaning set forth in Section 4.7(a).
"FINANCING OBLIGATIONS" shall mean (a) indebtedness of Seller for
borrowed money, (b) obligations of Seller evidenced by bonds, notes,
debentures, letters of credit or similar instruments, (c) obligations under
capitalized leases, (d) obligations under conditional sale, title retention
or similar agreements or arrangements creating an obligation of Seller with
respect to the deferred purchase price of property (other than customary
trade credit), (e) interest rate and currency obligation swaps, hedges and
similar arrangements and (f) all obligations of Seller to guaranty any of the
foregoing types of obligations on behalf of others, in each case as related
to the Business.
"FORMER FACILITY" shall mean each plant, office, manufacturing
facility, store, warehouse, improvement, administrative building and all real
property and related facilities that were owned, leased or operated by Seller
at any time prior to the date hereof, but excluding any Facilities.
"GAAP" shall mean generally accepted accounting principles
consistently applied as in effect at the time in question.
"HOLLYWOOD LEASE" shall mean a lease, dated as of the Closing Date,
between Seller, as lessor, and Purchaser, as lessee, with respect to that
real property located at 1133 N. Hollywood Way, Burbank, California 91505, in
the form attached hereto as Exhibit C, as modified on or prior to the Closing
by mutual agreement of Purchaser and Seller.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 10.7.
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 10.7.
"INSURANCE POLICIES" shall mean the insurance policies related to the
Assets and/or the Business listed in Section 4.22 of the Disclosure Schedule.
"INTANGIBLE PERSONAL PROPERTY" shall have the meaning set forth in
Section 4.13(a).
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"INTERIM BALANCE SHEET" shall have the meaning set forth in
Section 4.7(b).
"INTERIM FINANCIALS" shall have the meaning set forth in Section 4.7(b).
"IRS" shall mean the Internal Revenue Service.
"LEASED PERSONAL PROPERTY" shall mean all leased property described in
the Personal Property Leases.
"LIABILITIES" shall mean any liability of Seller, including, without
limitation, any direct or indirect liability, indebtedness, obligation,
commitment, expense, claim, deficiency, guaranty or endorsement of or by any
person of any type, whether accrued, absolute, contingent, matured,
unmatured, known, unknown or other, in each case as related to the Business.
"LICENSES" shall have the meaning set forth in Section 4.13(a).
"MATERIAL CONTRACTS" shall have the meaning set forth in Section 4.16.
"MULTI-EMPLOYER PLANS" shall have the meaning set forth in Section
4.14(a).
"OLIVE LEASE" shall mean a month-to-month lease, dated as of the
Closing Date, between Seller, as lessor, and Purchaser, as lessee, with
respect to that real property located at 2660 West Olive Avenue, Burbank,
California 91505, in the form attached hereto as Exhibit D, as modified on or
prior to the Closing by mutual agreement of Purchaser and Seller.
"OLIVE STREET PROPERTY" shall mean that real property located at 2660
West Olive Avenue, Burbank, California 91505 owned by Seller.
"PATENTS" shall mean all patents and patent applications and
registered designs and registered design applications.
"PERMITS" shall mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, or any other person,
necessary or desirable for the past, present or anticipated conduct of, or
relating to the operation of, the Business.
"PERMITTED ENCUMBRANCES" shall have the meaning set forth in
Section 8.13.
"PERSON" shall mean any natural person or any corporation,
partnership, joint venture, limited liability company or other entity.
"PERSONAL PROPERTY" shall have the meaning set forth in Section 4.26.
"PERSONAL PROPERTY LEASES" shall have the meaning set forth in
Section 4.26.
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"PLANS" shall have the meaning set forth in Section 4.15(a).
"PRE-CLOSING ENVIRONMENTAL MATTERS" shall mean (a) the production,
use, generation, storage, treatment, recycling, disposal or other handling or
disposition at any time on or prior to the Closing Date (collectively
"Handling") of any Regulated Substance, either in, on, under or from any
Facility or Former Facility, including, without limitation, the effects of
such Handling of Regulated Substances on resources, persons or property
within or outside the boundaries of any Facility or Former Facility, (b) any
release of Regulated Substances at any time on or prior to the Closing Date
occurring in, on or under any Facility or Former Facility regardless of how
the Regulated Substances came to rest in, on or under the Facility or Former
Facility, (c) the failure on or prior to the Closing Date of any Facility or
Former Facility or any operation of Seller to be in compliance with any
Environmental Laws, and (d) any other act or omission occurring, or condition
existing, with respect to the Assets or the Business on or prior to the
Closing Date which gives rise to liability under any Environmental Protection
Law.
"PRIME RATE" shall mean the lesser of (i) the prime rate as reported
from time to time by THE WALL STREET JOURNAL or (ii) the maximum rate
permitted by applicable law.
"PROPRIETARY RIGHTS" shall mean all of Seller's Copyrights, Patents,
Trademarks, technology rights and licenses, computer software (including
without limitation any source or object codes therefor or documentation
relating thereto), trade secrets, franchises, know-how, inventions, designs,
specifications, plans, drawings and intellectual property rights, in each
case as relates to the Business.
"PURCHASER" shall have the meaning set forth in the Preamble.
"REGULATED SUBSTANCE" shall mean any chemical or substance subject to
or regulated under any Environmental Protection Law including, without
limitation, any "pollutant or contaminant" or "hazardous substance" as those
terms are defined in CERCLA, any "hazardous waste" as that term is defined in
RCRA, and any other hazardous or toxic wastes, substances, or materials,
petroleum (including crude oil and refined and unrefined fractions thereof),
polychlorinated biphenyls ("PCBs"), infectious waste, special waste,
pesticides, fungicides, solvents, herbicides, flammables, explosives,
asbestos and asbestos containing material, and radioactive materials, whether
injurious by themselves or in combination with other materials.
"REGULATIONS" shall mean any laws, statutes, ordinances, regulations,
rules, notice requirements, court decisions and orders of any foreign,
federal, state or local government and any other governmental department or
agency.
"RELEASE DOCUMENTS" shall have the meaning set forth in Section
3.2(a)(vi).
"REPRESENTATIVE" shall mean any officer, director, principal,
attorney, agent, employee or other representative.
"SECURED INDEMNITY AGREEMENT" shall mean the Secured Indemnity
Agreement between
8
Purchaser and Seller dated as of the Closing Date, in substantially the form
of Exhibit G hereto.
"SELLER" shall have the meaning set forth in the Preamble.
"SUBSIDIARY" shall mean (a) with respect to Seller, any corporation,
association or other business entity of which more than fifty percent (50%)
of the total voting power of shares of stock (or equivalent ownership or
controlling interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by Seller
or one or more of the other Subsidiaries of that Person or a combination
thereof, (b) any partnership in which Seller is a general partner and any
limited liability company in which Seller is the managing member, or (c) any
partnership or limited liability company in which Seller possesses a 50% or
greater interest in the total capital or total income of such partnership or
limited liability company.
"TAX" or "TAXES" shall mean any and all taxes imposed or required to
be collected by any federal, state or local taxing authority in the United
States, or by any foreign taxing authority under any statute or regulation,
including, without limitation, all income, gross receipts, sales, use,
personal property, use and occupancy, business occupation, mercantile, ad
valorem, transfer, license, withholding, payroll, employment, excise, real
estate, environmental, capital stock, franchise, alternative or add-on
minimum, estimated or other tax of any kind whatsoever, including any
interest, penalties and other additions thereto.
"TRADEMARKS" shall mean registered trademarks, registered service
marks, trademark and service mark applications and unregistered trademarks
and service marks.
"TRANSACTIONS" shall mean, in respect of any party, all transactions
contemplated by this Agreement that involve, relate to or affect such party.
"TRANSFERRED EMPLOYEES" shall have the meaning set forth in Section
6.6(a).
"UNITED STATES GOVERNMENT" shall mean the government of the United
States, including any agencies, commissions, branches, instrumentalities and
departments thereof.
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ARTICLE 2
PURCHASE AND SALE OF ASSETS
SECTION 2.1 TRANSFER OF ASSETS. Upon the terms and subject to the
conditions contained herein, at the Closing, Seller shall sell, convey,
transfer, assign and deliver to Purchaser, and Purchaser shall acquire from
Seller, the Assets (including, without limitation, those assets of Seller listed
on Exhibit E hereto), free and clear of all Encumbrances.
SECTION 2.2 ASSUMPTION OF LIABILITIES. Upon the terms and subject to
the conditions contained herein, at the Closing, Purchaser shall assume the
Liabilities under the Accounts Payable, Contracts and Leases which are listed on
Schedule 2.2 attached hereto (collectively, "Assumed Liabilities").
SECTION 2.3 EXCLUDED LIABILITIES. Notwithstanding any other provision
of this Agreement, except for the Assumed Liabilities expressly specified in
Section 2.2, Purchaser shall not assume, or otherwise be responsible for, any
Liabilities of Seller, whether liquidated or unliquidated, or known or unknown,
whether arising out of occurrences prior to, at or after the date hereof (the
"Excluded Liabilities"), which Excluded Liabilities include, without limitation,
the following:
(a) except as otherwise expressly provided in Section 6.6, any
Liability to or in respect of any employees or former employees of Seller
including without limitation (i) any employment agreement, whether or not
written, between Seller and any person, (ii) any Liability under any Employee
Benefit Plan at any time maintained, contributed to or required to be
contributed to by or with respect to Seller or under which Seller may incur
Liability, or any contributions, benefits or Liabilities therefor, or any
Liability with respect to Seller's withdrawal or partial withdrawal from or
termination of any Employee Benefit Plan, (iii) any claim of an unfair labor
practice, or any claim under any state unemployment compensation or worker's
compensation law or regulation or under any federal or state employment
discrimination law or regulation, which shall have been asserted on or prior to
the Closing Date or is based on acts or omissions which occurred on or prior to
the Closing Date and (iv) any liabilities or obligations under the Worker
Adjustment and Retraining Notification Act of 1988, as amended, including the
rules and regulations promulgated thereunder;
(b) any Liability of Seller in respect of (i) any income tax or any
interest, penalties or additions pertaining thereto, (ii) any other Tax relating
to any period or portion thereof prior to the date of the Interim Balance Sheet
and not reflected on the Interim Balance Sheet or (iii) any other Tax relating
to any period or portion thereof from the date of the Interim Balance Sheet
unless such Tax is incurred (A) in the ordinary course of business consistent
with past practice and (B) in compliance with the terms of this Agreement;
(c) any warranty claims and any Liability arising from any injury to
or death of any person or damage to or destruction of any property, whether
based on negligence, breach of
10
warranty, express or implied representation, strict liability, enterprise
liability or any other legal or equitable theory arising from defects in
products manufactured or from services performed by or on behalf of Seller or
any other person or entity on or prior to the Closing Date;
(d) any Liability of Seller arising out of or related to any Action
against Seller or any Action which adversely affects the Assets and which shall
have been asserted on or prior to the Closing Date or the basis of which shall
have arisen on or prior to the Closing Date;
(e) any Liability of Seller resulting from entering into, performing
its obligations pursuant to or consummating the transactions contemplated by,
this Agreement (including without limitation any Liability of Seller for fees or
expenses incurred in connection with such transactions and any Liability of
Seller pursuant to Article X hereof);
(f) any Liability related to any Former Facility or any of the
Discontinued Operations;
(g) any Financing Obligation
(h) any Environmental Liabilities for Pre-Closing Matters, whether or
not disclosed in the Disclosure Schedule;
(i) any Liability of Seller for fees or expenses incurred prior to the
date hereof in connection with the review by Ernst & Young LLP of the financial
statements of Seller;
(j) any Liability of Seller not directly related or incurred with
respect to the conduct of the Business;
(k) except to the extent provided for herein, any indebtedness for
borrowed money;
(l) any amounts payable to any Affiliate of Seller;
(m) liability arising from or in connection with the Barsotti Action
or the Compact Storage Action;
(n) any cash overdraft liability; and
(o) any Liabilities accruing prior to the Closing Date.
SECTION 2.4 PURCHASE PRICE.
(a) PURCHASE PRICE. The purchase price for the Assets and the
Agreements Not To Compete (the "Purchase Price") shall consist of:
(i) Thirteen Million Dollars ($13,000,000) (the "Cash
Payment"); and
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(ii) An amount (the "Earn-Out"), payable in accordance with
Section 2.4(c) below, equal to (x) the amount of the Accounts Receivable as of
the Closing Date minus the amount of the Accounts Payable as of the Closing
Date, as verified by Purchaser's post-closing audit, minus (y) the aggregate
amounts owing or payable by Seller under Article X below to the extent not
previously paid to Purchaser.
(b) CLOSING PAYMENT. At the Closing, upon the terms and subject to
the conditions set forth herein, Purchaser shall deliver to Seller the Cash
Payment by wire transfer at the Closing to an account identified to Purchaser in
writing by Seller at least two business days prior to the Closing Date.
(c) EARN-OUT. Purchaser shall calculate the Gross Profit (as defined
herein) of the Business for the Earn-Out Period. If the Gross Profit for such
period is equal to or greater than $6.2 million (the "Gross Profit Target"),
then Purchaser shall pay the Seller the Earn-Out. If the Gross Profit for the
Earn-Out Period is less than the Gross Profit Target, Purchaser shall have no
obligation to pay the Earn-Out. "Gross Profit" shall mean the revenue of the
Business, net of direct and pooled expenses calculated as set forth on Schedule
2.4 hereto, as determined in accordance with GAAP. Gross Profit shall not be
reduced by any amounts paid under the provisions of Section 10 below. Purchaser
agrees to operate the Business in a manner in which the Gross Profit can
reasonably be determined and to spend at least $500,000 during the Earn-Out
Period on capital expenditures for the Business. Purchaser will use its
reasonable best efforts in the exercise of its business judgment to increase the
Gross Profit of the Business during the Earn-Out Period. Purchaser shall
maintain accurate books, records and documents reasonably necessary for the
calculation of Gross Profit. Seller shall, upon request delivered to Purchaser
in writing, have reasonable access during normal business hours to inspect such
books and records at its cost. Purchaser shall provide Seller with updates
regarding the Gross Profit of the Business on a monthly basis, such reports to
be provided with 30 days after the end of each month in the Earn-Out Period.
Purchaser shall pay to Seller the Earn-Out, if earned, within 45 business
days after the last day of month in which the first anniversary of the Closing
occurs. If Purchaser shall determine, after consultation with its independent
auditors, that the Gross Profit Target was not achieved, it shall so notify
Seller on or before the 45th business day after the last day of month in which
the first anniversary of the Closing occurs, and include in such notification
its calculation of the Gross Profit. Seller shall have a period of 30 days
thereafter to present in writing to Purchaser any objections or disagreement
with respect to the calculation of Gross Profit. Such notice shall specify, in
reasonable detail, the nature and extent of such disagreement.
If Seller and Purchaser are unable to resolve any such disagreement with
respect to the calculation of Gross Profit within ten (10) days after delivery
by Seller of the notice referred to above, the disagreement shall be submitted
for final determination to a partner, mutually acceptable to Seller and
Purchaser, of Arthur Andersen LLP. Such partner shall follow such procedures as
he or she deems appropriate for obtaining the necessary information in
considering the positions of Seller and Purchaser but shall not conduct an
independent audit. The Arthur Andersen partner shall render his or her
determination on the matter within 30 days of its
12
submission by Seller and Purchaser, and such determination shall be final,
conclusive and binding upon Purchaser and Seller.
The fees and expenses of the Arthur Andersen partner (A) shall be paid by
Seller if the Gross Profit for the Earn-Out Period, as determined by the Arthur
Andersen partner in accordance with GAAP, is less than $6.2 million, or (B)
shall be paid by Purchaser if the Gross Profit for the Earn-Out Period, as
determined by the Arthur Andersen partner in accordance with GAAP, is equal to
or greater than $6.2 million.
(d) ALLOCATION OF PURCHASE PRICE. Purchaser shall prepare IRS Form
8594 allocating the Purchase Price in accordance with Section 1060 of the Code
and shall forward it within 120 days after the Closing to Seller for its
approval, which approval shall not be unreasonably withheld. The parties agree
that Three Hundred Thousand Dollars ($300,000) of the aggregate Purchase Price
will be allocable to the Agreements Not to Compete. Purchaser and Seller shall
each file with their respective federal income tax return for the tax year in
which the Closing occurs, IRS Form 8594 containing the information agreed upon
by the parties pursuant to the immediately preceding sentence. Purchaser agrees
to report the purchase of the Assets, and Seller agrees to report the sale of
such Assets for income tax purposes (including but not limited to, on their
respective income tax returns, before any governmental agency charged with the
collection of income tax or in any judicial proceeding concerning the income tax
consequences of Purchaser's purchase or Seller's sale of the Assets hereunder)
in a manner consistent with the information agreed upon by the parties pursuant
to this Section 2.4(d) and contained in its IRS Form 8594.
SECTION 2.5 CLOSING COSTS; TRANSFER TAXES AND FEES. Seller shall be
responsible for any documentary and transfer taxes and any sales, use or other
taxes imposed by reason of the transfer of Assets provided hereunder and any
deficiency, interest or penalty asserted with respect thereto. Seller shall pay
the fees and costs of recording or filing all applicable conveyancing
instruments described in Section 3.2(a).
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ARTICLE 3
CLOSING
SECTION 3.1 CLOSING. The Closing of the transactions contemplated
herein (the "Closing") shall be held at 10:00 a.m. local time on the Closing
Date at the offices of Kaye, Scholer, Fierman, Hays & Handler, LLP, 1999 Avenue
of the Stars, Los Angeles, California, unless the parties hereto otherwise
agree.
SECTION 3.2 CONVEYANCES AT CLOSING.
(a) DOCUMENTS DELIVERED BY SELLER. To effect the sale of the Assets
and assumption of the Assumed Liabilities Seller shall, at the Closing, execute
(as applicable) and deliver to Purchaser:
(i) one or more bills of sale, each in the form attached hereto
as Exhibit H, conveying in the aggregate all of Seller's owned personal property
included in the Assets;
(ii) Assignments of Personal Property Leases, each in the form
attached hereto as Exhibit I, with respect to the Personal Property Leases;
(iii) Assignments of Contracts, each in the form attached hereto
as Exhibit J, with respect to the Contract Rights;
(iv) Assignments of Seller's rights, title and interest to the
name "ALL POST, INC." and all variations thereof);
(v) the Ancillary Agreements;
(vi) releases of any Encumbrances on the Assets (the "Release
Documents"), including: (a) a UCC-2 Financing Statements executed by Sanwa
Business Credit Corporation and Westar Capital and affliates with regard to a
release of all liens and claims on the Assets and the Olive Street Property and
(b) a reconveyance or release of items 12, 13 and 14 of the preliminary Title
Policy;
(vii) the Deed of Trust in a form suitable for recording in the
Los Angeles County Recorder's Office and UCC-1 Financing Statement;
(viii) all other third party consents required for the valid
transfer of the Assets as contemplated by this Agreement, including the consents
specified on Schedule 4.4; and
(ix) such other instruments as shall be requested by Purchaser
to vest in Purchaser title in and to the Assets in accordance with the
provisions hereof.
(b) DOCUMENTS DELIVERED BY PURCHASER. To effect the sale of the
Assets and
14
assumption of the Assumed Liabilities, Purchaser shall at the Closing execute
and deliver to Seller (i) an instrument or instruments of assumption
substantially in the form attached as Exhibit F, evidencing Purchaser's
assumption, pursuant to Section 2.2, of the Assumed Liabilities (the
"Assumption Document"); and (ii) the Ancillary Agreements.
(c) FORM OF INSTRUMENTS. To the extent that a form of any document to
be delivered hereunder is not attached as an exhibit hereto, such documents
shall be in form and substance, and shall be executed and delivered in a manner,
reasonably satisfactory to Purchaser and Seller.
(d) CERTIFICATES; OPINIONS. Purchaser and Seller shall deliver the
certificates, opinions of counsel and other matters described in Articles VII
and VIII.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser that:
SECTION 4.1 ORGANIZATION AND GOOD STANDING. Seller is a corporation
duly incorporated in the State of California, validly existing and in good
standing under the laws thereof, and Seller is duly qualified or authorized to
do business in each jurisdiction in which it does business, or owns property, or
where such qualification or authorization is otherwise required by virtue of its
presence or activities. Schedule 4.l sets forth a complete and correct list of
all jurisdictions in which Seller does business or is otherwise required to be
qualified or authorized to transact business or own property.
SECTION 4.2 ASSETS. Seller owns, and will transfer good and marketable
title to, the Assets and upon the consummation of the transactions contemplated
hereby, Purchaser will acquire good and marketable title to all of the Assets,
free and clear of any Encumbrances. The Assets include all of the business,
properties, assets and rights of any kind, whether tangible or intangible, real
or personal, used in connection with or relating to the Business or in which
Seller has any interest (to the extent related to the Business) and are
sufficient to conduct the Business. All tangible assets and properties which
are part of the Assets are in good operating condition and repair and are usable
in the ordinary course of business and conform in all respects to all applicable
Regulations (including Environmental Laws) relating to their construction, use
and operation.
SECTION 4.3 LICENSES AND PERMITS. Seller is duly licensed, with all
requisite permits and qualifications, as required by applicable law for the
purpose of conducting its business or owning its properties or both, in each
jurisdiction in which it does business or owns property or in which such
license, permit or qualification is otherwise required. Seller is in compliance
in all respects with all such licenses, permits and qualifications.
Schedule 4.3 sets forth a list of all such licenses, permits and qualifications.
There are no proceedings pending or threatened, to revoke or terminate any such
presently existing license, permit or qualification, and each such presently
existing license, permit or qualification can be renewed in the ordinary course
of
15
business.
SECTION 4.4 NO BREACH. Except as set forth on Schedule 4.4, neither
the execution and delivery of this Agreement nor the consummation of the
Transactions will (A) violate, result in a breach of any of the terms or
provisions of, constitute a default (or any event that, with the giving of
notice or the passage of time or both, would constitute a default) under, result
in the acceleration of any indebtedness under or performance required by, result
in any right of termination of, increase any amounts payable under, decrease any
amounts receivable under, change any other rights pursuant to, or conflict with,
Seller's Articles of Incorporation, any agreement, indenture or other instrument
to which Seller is a party or by which any of its properties are bound, or any
judgment, decree, order or award of any court, governmental body or arbitrator
(domestic or foreign) applicable to Seller, or (B) require Seller to obtain any
authorization, consent, approval or waiver from, or make any filing with, any
Person, court or public body or authority.
SECTION 4.5 AUTHORITY. Seller has the right to sell, convey, transfer,
assign and deliver the Assets to Purchaser hereunder. This Agreement and all
agreements and instruments herein contemplated to be executed by Seller have
been duly authorized, executed and delivered by Seller and no other corporate
action is required on the part of Seller in order to authorize the execution,
delivery and performance of this Agreement. This Agreement and all agreements
and instruments herein contemplated constitutes the valid and binding
obligations of Seller, enforceable in accordance with their respective terms.
Schedule 4.5 hereto identifies those agreements which require the consent of
third parties to the Transactions, which consents have not been obtained.
SECTION 4.6 SUBSIDIARIES. Other than Post Optical Services, Seller has
no equity interest in any corporation, partnership, limited liability company or
similar entity.
SECTION 4.7 FINANCIAL STATEMENTS.
(a) The balance sheets of Seller at July 31, 1997, July 31, 1996 and
July 31, 1995 (individually, a "Balance Sheet" and collectively, the "Balance
Sheets") and the statements of operations and retained earnings and the
statements of cash flows of Seller for each of the 12 month periods then ended
and notes thereto (collectively, the "Financials"), true and correct copies of
which are attached hereto as Schedule 4.7(a), (i) have been prepared from the
books and records of Seller in accordance with GAAP consistently applied with
prior periods, and (ii) are complete and correct and fairly present in
accordance with GAAP, in each case in all respects, the financial condition and
results of operations of Seller as of the dates and for the periods indicated
thereon. The statements of operations included in the Financials do not contain
any items of extraordinary income or any other income not earned in the ordinary
course of business.
(b) The unaudited balance sheet at March 31, 1998 (the "Interim
Balance Sheet"), and the unaudited statements of operations and retained
earnings and statements of cash flows for Seller for the nine month period then
ended and notes thereto (collectively, the "Interim
16
Financials"), true and correct copies of which are attached hereto as
Schedule 4.7(b), (i) have been prepared from the books and records of Seller
in accordance with GAAP consistently applied with prior periods, and (ii) are
complete and correct and fairly present, in each case in all respects, the
financial condition and results of operations of Seller as of the dates and
for the periods indicated thereon.
(c) The Financials have been audited by the independent accounting
firm of Ernst & Young LLP whose reports thereon are part of Schedule 4.7. The
books of accounts of Seller have been maintained in all respects in accordance
with sound business practices, and there have been no transactions involving
Seller that properly should have been set forth therein in accordance with
generally accepted accounting principles that have not been accurately so set
forth.
SECTION 4.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed on
Schedule 4.8, since March 31, 1998, there has not occurred (in each case with
respect only to the Assets or the Business):
(a) Any adverse change (whether absolute, accrued, contingent or
otherwise), condition (financial or otherwise), or results of operations not
reflected in the Financials or the Interim Financials and that has resulted in
or reasonably could result in a loss to Seller of more than $100,000 in the
aggregate;
(b) Any guarantee by Seller of any obligation, or any mortgage,
pledge or encumbrance on any of the properties or assets of Seller; other than
set forth on Schedule 2.2, there are no Assumed Liabilities;
(c) Any amendment or modification of any Material Contract (as defined
below), or any termination of any agreement that would have been a Material
Contract were such agreement in existence on the date hereof;
(d) Any entering into of any written or oral agreements, contracts,
commitments or transactions that extend beyond the first anniversary hereof or
have obligations thereunder in excess of $25,000, including any purchase or sale
of any assets.
(e) Any increase in excess of $25,000 annually in the compensation
(including, without limitation, the rate of commissions) payable to, or any
payment of a cash bonus to, any employee or agent of, or consultant to, Seller;
(f) Any alteration in the manner of keeping the books, accounts or
records of Seller, or in the accounting practices therein reflected;
(g) Any declaration or payment of any dividends or distributions by
Seller, any acquisition or redemption by Seller of any of its equity securities
or any loan by Seller to any other Person;
17
(h) Any loss or threatened loss of a customer or customers during the
past two years to which Seller had annual sales in excess of $50,000 in either
year;
(i) Any damage or destruction to, or loss of, any assets or property
owned, leased or used by Seller (whether or not covered by insurance) in excess
of $5,000; or
(j) Any agreement to do any of the things described in the preceding
clauses (a) - (h) of this Section 4.8.
SECTION 4.9 ABSENCE OF UNDISCLOSED LIABILITIES. There are no
liabilities in excess of $1,000 with respect to the Assets or the Business
whether absolute, accrued, contingent or otherwise, and whether due or to become
due, not reflected on or reserved for on the Balance Sheet or the Interim
Balance Sheet, except as set forth in Schedule 4.9 and except for current
liabilities incurred in the ordinary course of business since the respective
dates thereof. There are no commitments, contracts or undertakings covering the
purchases of items of inventory in excess of Seller's normal operating
requirements or covering the purchases of items of machinery and equipment in
excess of the requirements of Seller. Seller is not a party to, is not bound
by, nor has bid upon any contract or agreement that is adverse to the assets,
condition (financial or otherwise), business or prospects of Seller, that will
require future expenditures (including incurred costs and allocated overhead and
selling, general and administrative expense) in excess of reasonably anticipated
receipts by more than $10,000 in the aggregate, or on which Seller expects to
lose in excess of $10,000 in the aggregate.
SECTION 4.10 ACCOUNTS RECEIVABLE. Schedule 4.10 is an accurate aging of
the Accounts Receivable at May 31, 1998 which represent valid obligations
arising from sales actually made or services actually performed in the ordinary
course of business. The Accounts Receivable as of such date and any Accounts
Receivable arising since such date are fully collectible, net of the reserves
set forth in the Balance Sheet, all of which reserves are adequate in accordance
with GAAP. The positive difference between the Accounts Receivable and Accounts
Payable as of the Closing Date is at least $1.5 million.
SECTION 4.11 REAL PROPERTY; REAL PROPERTY LEASES. Other than the real
property to be leased pursuant to the Hollywood Lease and the Olive Lease, there
is no real property owned by, leased to (other than as set forth on Schedule
4.11), or otherwise used by Seller in connection with the Business.
SECTION 4.12 ENVIRONMENTAL MATTERS. Except as set forth in Schedule
4.12:
(a) As to the Assets and the Business, Seller is, and at all times has
been, in all respects in compliance in all material respects with all
Environmental Protection Laws;
(b) Seller has obtained or has timely applied for all permits,
licenses and other authorizations under Environmental Protection Laws which are
required in connection with the Business, all of which are in full force and
effect. Seller is in compliance with all terms and conditions of such permits,
licenses and authorizations, no action or proceeding which reasonably could be
expected to result in the revocation or suspension of any such permits,
18
licenses and authorizations is pending or, to the best of Seller's knowledge,
threatened, and Seller has not engaged in any conduct which reasonably could
be expected to cause revocation or suspension of any of its permits, licenses
or authorizations under Environmental Protection Laws;
(c) Seller has not received at any time prior to the date hereof a
summons, citation, notice, directive, letter or other communication, written or
oral, from the EPA or any other federal, state, local or other governmental
agency or instrumentality, authorized pursuant to an Environmental Protection
Law, concerning any intentional or unintentional action or omission (except any
pertaining to emissions of fugitive dust and other non-hazardous particulates
that are routinely corrected) by Seller constituting a violation or potential
violation of any Environmental Protection Law, including, without limitation,
violations relating to the releasing, spilling, leaking, pumping, pouring,
emitting, emptying, dumping or otherwise disposing of any Regulated Substance
into the environment resulting in damage thereto or to the wildlife, biota and
other natural resources, and there exist no facts that would form the basis for
a finding of such a violation; and
(d) Seller has not received at any time prior to the date hereof any
summons, citation, notice, directive, letter or other communication, written or
oral, of any potential claim or liability under any Environmental Protection
Law, including, without limitation, any notification as a potentially
responsible party with respect to any Superfund or other clean-up site. There
are no events, conditions, circumstances, activities, practices, incidents,
actions or plans at or concerning the operations of Seller which may (i)
interfere with or prevent continued compliance by Seller with any Environmental
Protection Law, (ii) give rise to any claim or liability under any Environmental
Protection Law, or (iii) form the basis for any claim, action, suit, proceeding,
hearing or investigation under any Environmental Protection Law.
(e) Except as set forth on Schedule 4.12(i) , Seller has not received
any notice from a governmental authority or otherwise of any health problem of
any current or former employee which in any way is or is alleged to be related
to the operation of the Business.
SECTION 4.13 INTANGIBLE PERSONAL PROPERTY.
(a) There are no (i) patent, patent applications, copyright, copyright
applications, trademark, trademark applications (in any such case, whether
registered or required to be registered in the United States of America or
elsewhere), process, invention, trade secret, trade name, computer program,
formula and customer list (collectively, the "Intangible Personal Property") of
Seller related to, or necessary to continue the operation of, the Business, or
(ii) licenses or similar agreements or arrangements ("Licenses") to which Seller
is a party either as licensee or licensor for each such item of Intangible
Personal Property; and
(b) The conduct by Seller of the Business does not infringe the valid
patents, trademarks, trade secrets or trade names of others.
SECTION 4.14 LABOR AND EMPLOYMENT AGREEMENTS.
19
(a) Schedule 4.14 sets forth as to those employees involved with the
Business, a complete and correct list of the following:
(i) Each employment, consulting, collective bargaining and
similar agreement, whether written or oral, to which Seller is a party or by
which it is bound; and
(ii) The name of (A) each employee of Seller who since January
1, 1997, was or is being paid $50,000 or more per year, and (B) each agent of or
consultant to Seller who since January 1, 1997 was or is being paid $50,000 or
more per year.
As used in this Section 4.14, the word "agreement" includes both
oral and written contracts, understandings, arrangements and other agreements.
(b) Seller has complied in all material respects with all applicable
laws, rules and regulations relating to the employment of labor, including,
without limitation, those related to wages, hours, collective bargaining and the
payment and withholding of taxes and other sums as required by appropriate
governmental authorities and has withheld and paid to the appropriate
authorities, or is holding for payment not yet due to such authorities, all
amounts required to be withheld from such employees and is not liable for any
arrears of wages, taxes, penalties or other sums for failure to comply with any
of the foregoing.
(c) No unfair labor practice complaint is pending against Seller
before the National Labor Relations Board or any federal, state or local agency
and no labor strike, grievance or other labor dispute affecting Seller is
pending or, to the best of Seller's knowledge, threatened.
(d) Except as set forth in Schedule 4.14, no organization effort, and
no sex discrimination, racial discrimination, age discrimination or other
employment-related allegation, claim, suit or proceeding, has been made or is
pending or, to the best of Seller's knowledge, threatened with respect to the
employees of Seller and no such effort, allegation, claim, suit or proceeding
has been made, raised, brought or threatened within the three-year period prior
to the date of this Agreement.
(e) No arbitration proceeding arising out of or under any collective
bargaining agreement applicable to Seller is pending and, to the best of
Seller's knowledge, no basis for any such proceeding exists.
(f) All reasonably anticipated obligations of Seller, whether arising
by operation of law, contract, past custom or otherwise, for unemployment
compensation benefits, pension benefits, advances, salaries, bonuses, vacation
and holiday pay, sick leave and other forms of compensation payable to the
employees or agents of Seller in respect of the services rendered by any of them
on or prior to the date of the Financials have been paid or adequate accruals
therefor have been made in the books and records of Seller and in the
Financials. All such obligations in respect of services rendered on or prior to
the date hereof have been paid as of the date hereof, or adequate accruals
therefor have been made on the Interim Balance Sheet, in accordance with
20
GAAP. All accrued obligations of Seller applicable to its employees, whether
arising by operation of law, contract, past custom or otherwise, for payments
to trusts or other funds or to any governmental agency, with respect to
unemployment compensation benefits, social security benefits or any other
benefits for employees, with respect to employment of said employees through
the date of the Financials have been paid or adequate accruals therefor have
been made on the books and records of Seller and in the Financials in
accordance with GAAP. All such obligations with respect to employment of
employees through the date hereof have been paid as of the date hereof, or
adequate accruals therefor have been made on the Interim Balance Sheet, in
accordance with GAAP.
SECTION 4.15 EMPLOYEE BENEFIT PLANS: ERISA.
(a) Except as set forth in Section 4.15(a) of the Disclosure Schedule,
Seller (i) does not maintain, contribute to or have any obligation with respect
to, and none of the employees of the Business is covered by, any bonus, deferred
compensation, severance pay, pension, profit-sharing, retirement, insurance, or
other fringe benefit plan, arrangement or practice, written or otherwise, or any
other "employee benefit plan," as defined in Section 3(3) of ERISA, whether
formal or informal (collectively, the "Plans"), (ii) is not a party to a
contract for the employment of any employee of the Business or any other person
who renders services to the Business, and (iii) does not have any ERISA
Affiliates. None of the Plans is, and neither Seller nor any of its ERISA
Affiliates has ever maintained or had an obligation to contribute to, (i) a plan
subject to Section 412 of the Code or Title I, Subtitle B, Part 3 of ERISA, (ii)
a "multi employer plan," as defined in Section 3(37) of ERISA (a "Multi employer
Plan"), (iii) a "multiple employer plan," as defined in ERISA or the Code, or
(iv) a funded welfare benefit plan, as defined in Section 419 of the Code.
Seller does not have any agreement or commitment to create or contribute to any
additional Plan, enter into any additional employment agreement or to modify or
change any existing Plan or employment agreement. Section 4.15(a) of the
Disclosure Schedule contains a complete and accurate list of the following
information for each employee of the Business (including each employee who is on
a leave of absence or on layoff status): name, employer, job title(s), date of
hire, current salary and benefit arrangements, years of service for purposes of
eligibility, vesting, and benefit determination under any of the Plans, and
current status (E.G., active employee, on leave, etc.). None of the employees
of the Business is a "leased employee," as defined in Section 414(n) of the
Code.
(b) With respect to each Plan, Seller has heretofore delivered or
caused to be delivered to Purchaser true, correct and complete copies of (i)
all documents that comprise the most current version of such Plan, including any
related trust agreements, insurance contracts, or other funding or investment
agreements and any amendments thereto, and (ii) with respect to each Plan that
is an "employee benefit plan," as defined in Section 3(3) of ERISA, (A) the
three most recent Annual Reports (Form 5500 Series) and accompanying schedules
for each of the Plans for which such a report is required, (B) the most current
summary plan description (and any summary of material modifications), (C) the
three most recent certified financial statements for each of the Plans for which
such a statement is required or was prepared, and (D) for each Plan intended to
be "qualified" within the meaning of Section 401(a) of the Code, all Internal
Revenue Service determination letters issued with respect to such Plan. Except
as set forth in
21
Section 4.16(b) of the Disclosure Schedule, since the date of the foregoing
documents, there has not been any change in the assets or liabilities of any
of the Plans or any change in their terms and operations that could
reasonably be expected to affect or alter the tax status or affect the cost
of maintaining such Plan, and none of the Plans has been or will be amended
prior to the Closing Date. Each of the Plans can be amended, modified or
terminated by Seller within a period of thirty (30) days, without payment of
any additional compensation or amount or the additional vesting or
acceleration of any such benefits, except to the extent that such vesting is
required under the Code upon the complete or partial termination of any Plan
intended to be qualified within the meaning of Section 401(a) of the Code.
(c) Seller has performed and complied in all respects with all of its
obligations under and with respect to the Plans, and each of the Plans has, at
all times, in form, operation and administration complied in all respects with
its terms, and, where applicable, the requirements of all applicable laws. Each
Plan that is intended to be "qualified" within the meaning of Section 401(a) of
the Code has been determined by the Internal Revenue Service to be so qualified
and nothing has occurred that reasonably could be expected to adversely affect
such qualified status.
(d) Seller has made all contributions with respect to a Plan that are
required to have been made as of the date hereof under the terms thereof, or
under the terms of any related insurance contract, or any applicable law.
(e) All Plans that are group health plans have been operated in
compliance with the continuation coverage requirements of Section 4980B of the
Code (and any predecessor provisions) and Part 6 of Title I of ERISA ("COBRA").
Seller does not have any obligation to provide health benefits or other
non-pension benefits to any retired or other former employees, except as
specifically required by COBRA.
(f) Neither Seller nor any other "disqualified person" or "party in
interest," as defined in Section 4975 of the Code and Section 3(14) of ERISA,
respectively, has engaged in any "prohibited transaction," as defined in
Section 4975 of the Code or Section 406 of ERISA, with respect to any Plan , and
Seller is not aware of any fiduciary violations under ERISA with respect to any
Plan, that could subject Seller (or any employee thereof) to any penalty or tax
under Section 502(i) of ERISA or Sections 4971 and 4975 of the Code.
(g) Except as set forth in Section 4.15(g) of the Disclosure Schedule,
with respect to any Plan: (i) no filing, application or other matter is pending
with the Internal Revenue Service, the Pension Benefit Guaranty Corporation, the
United States Department of Labor or any other governmental body, (ii) there is
no action, suit or claim pending (and Seller is not aware of any basis for such
a claim), other than routine claims for benefits, and (iii) there are no
outstanding liabilities for taxes, penalties or fees.
(h) Seller has not incurred any liability or taken any action, and is
not aware of any event that has occurred or is likely to occur, that could
cause any one of them to incur any liability (i) under Section 412 of the Code
or Title IV of ERISA with respect to any "single-
22
employer plan" (as defined in Section 4001(a)(15) of ERISA), (ii) on account
of a partial or complete withdrawal (as defined in Sections 4203 and 4205 of
ERISA, respectively) with respect to any Multi employer Plan, (iii) on
account of unpaid contributions to any Multi employer Plan, or (iv) on
account of any reorganization, insolvency or termination of any Multi
employer Plan.
(i) Neither the execution and delivery of this Agreement nor the
consummation of any or all of the Transactions will: (i) entitle any current or
former employee of the Business to severance pay, unemployment compensation or
any similar payment, (ii) accelerate the time of payment or vesting or increase
the amount of any compensation due to any such employee or former employee, or
(iii) directly or indirectly result in any payment made or to be made to or on
behalf of any person to constitute a "parachute payment" within the meaning of
Section 280G of the Code.
SECTION 4.16 MATERIAL CONTRACTS AND RELATIONSHIPS.
(a) Except for agreements specifically identified on other schedules
hereto, Schedule 4.16(a) sets forth a complete and correct list of the
following, in each case to the extent related to the Business:
(i) All agreements (or groups of agreements with one or more
related entities) between Seller and any customer or supplier in excess
of $10,000 and all agreements and purchase orders extending beyond 12
months;
(ii) In each case to the extent related to Seller, all
agreements that relate to the borrowing or lending by Seller of any money
or that create or continue any claim, lien, charge or encumbrance
against, or right of any third party with respect to, any asset of
Seller;
(iii) All agreements by which Seller leases any real property,
has the right to lease any real property or leases capital equipment or
leases any other personal property, and all other leases involving Seller
as lessee or lessor;
(iv) All agreements to which Seller is a party not in the
ordinary course of business;
(v) All contracts or commitments relating to commission
arrangements with others;
(vi) All license agreements, whether as licensor or licensee;
(vii) All agreements between Seller and its sales
representatives;
(viii) All agreements between Seller and its customers relating to
volume rebates or price reductions;
23
(ix) All other agreements to which Seller is a party or by which
it is bound and that involve $20,000 or more or that extend for a period
of one year or more;
(x) All other agreements to which Seller is a party or by which
it is bound and that are or may be material to the assets, liabilities
(whether absolute, accrued, contingent or otherwise), condition
(financial or otherwise), results of operations, business or prospects of
Seller; and
(xi) A current list of Seller's active customers.
As used in this Section 4.16, the word "agreement" includes both oral and
written contracts, leases, understandings, arrangements and all other
agreements. The term "Material Contracts" means the agreements of Seller
required to be disclosed on Schedule 4.16(a), including agreements specifically
identified in other schedules hereto.
(b) All of the Material Contracts are in full force and effect, are
valid and binding and are enforceable in accordance with their terms in favor of
Seller. There are no liabilities of any party to any Material Contract arising
from any breach or default of any provision thereof and no event has occurred
that, with the passage of time or the giving of notice or both, would constitute
a breach or default by Seller or, to the best of Seller's knowledge, any other
party thereto.
(c) Seller (i) has fulfilled all obligations required pursuant to each
Material Contract to have been performed by it prior to the date hereof, and
(ii) as far as reasonably foreseeable based on current conditions, will be able
to fulfill all of its obligations under the Material Contracts that remain to be
performed after the date hereof.
(d) Schedules 4.16(b), (c) and (d) set forth a complete and correct
list of each (i) customer (or related group of customers) with whom Seller did
$50,000 or more of business during the last fiscal year or the current fiscal
year, (ii) supplier (or related group of suppliers) with whom Seller did $50,000
or more of business during the last fiscal year or the current fiscal year, and
(iii) agent (or related group of agents) or Representative (or related group of
Representatives) who was paid $25,000 or more by Seller during the last fiscal
year or the current fiscal year, respectively.
(e) Seller has maintained and continues to maintain good relations
with its customers, suppliers and agents and, except as set forth in Schedule
4.16(e), Seller does not reasonably expect that any customer (to which Seller
had annual sales in excess of $50,000 during the past two years), supplier or
agent will stop doing business with Seller or will change the terms on which
such customer, supplier or agent has done business with Seller in the past.
SECTION 4.17 INVENTORY. Except for tape stock and work in progress and
as disclosed on Schedule 4.17, Seller has no inventory relating to the Business.
SECTION 4.18 ABSENCE OF CERTAIN BUSINESS PRACTICES. Except as disclosed
on Schedule 4.18, neither Seller nor any employee, agent or other person acting
on behalf of Seller has,
24
directly or indirectly, given or agreed to give any gift or similar benefit
to any customer, supplier, competitor or governmental employee or official
(domestic or foreign) related to the Business that would subject Seller to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding.
SECTION 4.19 COMPLIANCE WITH LAWS. Except as set forth on Schedule
4.19, the operation, conduct and ownership of the property or the Business are
being, and at all times have been, conducted, in all respects, in material
compliance with all federal, state, local and other (domestic and foreign) laws,
rules, regulations and ordinances (including without limitation, those relating
to employment discrimination, occupational safety, conservation or corrupt
practices) and all judgments and orders of any court, arbitrator or governmental
authority applicable to it. Except as set forth on Schedule 4.19, there are no
proposed federal, state, local and other (domestic or foreign) law, rule,
regulation, ordinance, order, judgment, decree, governmental taking,
condemnation or other proceeding that would be applicable to the business,
operations or properties of Seller.
SECTION 4.20 LITIGATION. Schedule 4.20 sets forth a complete and
correct list, together with a status report, of each legal, administrative,
arbitration or other proceeding, or governmental investigation, to which Seller
is a party (or by which Seller's properties are affected), or was a party or was
otherwise affected (or by which any of its properties were affected) during the
past three years. Except as set forth on Schedule 4.20, there is no legal,
administrative, arbitration or other proceeding, or any governmental
investigation, pending or, to the best of Seller's knowledge, threatened
against or otherwise affecting Seller or any of its assets. Seller has given in
a timely manner to its insurers all notices required to be given under each of
its insurance policies, if any, with respect to all of the claims and actions
disclosed on Schedule 4.20, and no insurer has denied coverage of any of such
claims or actions or rejected any of the claims with respect thereto.
SECTION 4.21 TAXES. Except as set forth on Schedule 4.21:
(a) Seller has timely filed all Tax returns and reports required to
have been filed by it for all taxable periods ending on or prior to the date
hereof;
(b) All Taxes of Seller for all taxable periods ending on or prior to
the date hereof have been paid or have been adequately reserved for on the
Interim Balance Sheet. The Tax returns and reports filed are true and correct
in all respects;
(c) None of such returns contains, or will contain, a disclosure
statement under Section 6662 of the Code (or any predecessor statute) or any
similar provision of state, local or foreign law;
(d) Seller has not received notice that the IRS or any other taxing
authority has asserted against Seller any deficiency or claim for additional
Taxes;
(e) All Tax deficiencies asserted or assessed against Seller have been
paid or finally
25
settled;
(f) There is no pending or, to the best of Seller's knowledge,
threatened action, audit, proceeding, or investigation with respect to (i) the
assessment or collection of Taxes of Seller or (ii) a claim for refund made by
Seller with respect to Taxes previously paid in connection therewith;
(g) All amounts that are required to be collected or withheld by
Seller or with respect to Taxes of Seller have been duly collected or withheld;
all such amounts that are required to be remitted to any taxing authority have
been duly remitted;
(h) Neither the IRS nor any state, foreign or local taxing authority
has examined any income tax return of Seller;
(i) Seller has not waived any statute of limitations (that have not
expired as of the date hereof) with respect to the assessment of any Tax;
(j) Seller has not taken any action not in accordance with past
practice that would have the effect of deferring any Tax liability of Seller
from any taxable period ending on or before the date hereof to any taxable
period ending after such date;
(k) No consent has been filed under Section 341(f) of the Code with
respect to Seller;
(l) There are no liens for Taxes due and payable upon any assets of
Seller;
(m) Seller has not participated in, or cooperated with, an
international boycott within the meaning of Section 999 of the Code;
(n) Seller is not currently required to include in income any
adjustment pursuant to Section 481(a) of the Code (or similar provisions of
other law or regulations) by reason of a change in accounting method nor does
Seller have any knowledge that the IRS (or other taxing authority) has proposed,
or is considering, any such change in accounting method;
(o) Seller is not a party to any agreement, contract, arrangement or
plan that would result in the payment of any "excess parachute payment" within
the meaning of Section 280G of the Code;
(p) None of the assets of Seller is property that is required to be
treated as owned by any other person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954 as
amended and in effect immediately prior to the enactment of the Tax Reform Act
of 1986 and none of the assets of Seller is "tax exempt use property" within the
meaning of Section 168(h) of the Code; and
(q) None of the assets of Seller secures any debt the interest on
which is tax exempt under Section 103 of the Code.
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SECTION 4.22 INSURANCE MATTERS.
(a) Schedule 4.22 sets forth a complete and correct list of:
(i) All insurance policies and of all claims made by Seller on
any liability or other insurance policies during the past three
years (other than worker's compensation claims);
(ii) All insurance currently in place and accurately sets forth
the coverages, deductible amounts, carriers and expiration dates
thereof; and
(iii) All insurance with respect to which the policy period has
expired, but for which certain of the coverage years are still
subject to audit or retrospective adjustment by the carrier, and
accurately sets forth such coverage years and the coverages,
deductible amounts, carriers and expiration dates hereof.
(b) There are no outstanding requirements or recommendations by any
insurance company that issued any policy of insurance to Seller or by any board
of underwriters or other similar body exercising similar functions or by any
governmental authority exercising similar functions that require or recommend
any changes in the conduct of the Business or any repairs or other work to be
done on or with respect to any of the Assets.
(c) Except as set forth on Schedule 4.22, no notice or other
communication has been received by Seller from any insurance company within the
two years preceding the date hereof canceling or amending or increasing the
annual or other premiums payable under any of its insurance policies, and no
such cancellation, amendment or increase of premiums is threatened.
(d) During the past two years, Seller has maintained occurrence-based
comprehensive general liability and completed operations insurance (including
product liability insurance) with a single combined annual limit of at least
$1,000,000, and no claims have been made or paid, and no claims are currently
pending, under any of such comprehensive general liability insurance policies.
(e) No lawsuits have been filed and no claims have been made or
threatened against Seller as a result of accidents which occurred during the
one-year period prior to the date hereof that would give rise to a claim with
respect to any services provided by or products designed, manufactured, or sold
by Seller or the operations of Seller.
SECTION 4.23 NO POWERS OF ATTORNEY OR SURETYSHIPS. Except as set forth
on Schedule 4.23, with respect to the Business or the Assets (i) Seller has not
granted any general or special powers of attorney and (ii) Seller does not have
any obligation or liability (whether actual, contingent or otherwise) as
guarantor, surety, co-signer, endorser, co-maker, indemnitor, obligor on an
asset or income maintenance agreement or otherwise in respect of the obligation
of any person, corporation, partnership, joint venture, association,
organization or other entity.
27
SECTION 4.24 BROKERAGE FEES. No Person is entitled to any brokerage or
finder's fee or other commission from Seller in respect of this Agreement or the
Transactions.
SECTION 4.25 BANKING FACILITIES. Schedule 4.25 sets forth, with respect
to the Business, a complete and correct list of:
(a) Each bank, savings and loan or similar financial institution in
which Seller has an account or safety deposit box and the numbers of such
accounts or safety deposit boxes maintained thereat; and
(b) The names of all persons authorized to draw on each such account
or to have access to any such safety deposit box, together with a description of
the authority (and conditions thereto, if any) of each person with respect
thereto.
SECTION 4.26 MACHINERY, EQUIPMENT AND OTHER PERSONAL PROPERTY; PERSONAL
PROPERTY LEASES. Except as set forth in Schedule 4.26, Seller owns all of the
machinery, equipment, vehicles, furniture, fixtures, leasehold improvements,
repair parts, tools and other property (collectively, the "Personal Property")
used by Seller in connection with, or relating to, the Business. All such
Personal Property is in good operating condition and sufficient to carry on the
Business in the normal course as it is presently conducted and is free from
defects, whether patent or latent. Schedule 4.26 sets forth a complete and
correct summary description and identification of each lease (a "Personal
Property Lease") of personal property used in the Business or constituting an
Asset under which Seller is either a lessee, sublessee, lessor or sublessor.
Except as set forth in Schedule 4.26:
(a) Each Personal Property Lease is a valid and binding obligation of
Seller that is a party thereto, and each such Personal Property Lease is a valid
and binding obligation of each of the other parties thereto; and
(b) Neither Seller nor any other party to a Personal Property Lease is
in default with respect to any term or condition thereof, and no event has
occurred that, with the passage of time or the giving of notice or both, would
constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance upon
any asset of Seller.
SECTION 4.27 PRODUCT WARRANTY AND LIABILITY. Each product designed,
manufactured, or sold by Seller in its conduct of the Business and all services
performed by Seller in the Business have been in conformity in all respects with
all applicable contractual commitments and all express and implied warranties,
except for returns of duplicated tapes in an immaterial amount consistent with
Seller's history and standard industry experience. Seller does not have any
liability, and there is no basis for any present or future action, suit or other
proceeding giving rise to any liability, (i) for replacement or repair of any
such product or other damages in connection therewith, or (ii) arising out of
any injury to persons or property as a result of any such product or any
services performed by Seller. Seller has not received any notice that an
action, suit or proceeding has been, or in the future may be, made alleging that
products or
28
services of Seller are or were defective in any respect.
SECTION 4.28 STANDARDS AND CERTIFICATIONS. Products previously
designed, manufactured, sold and leased by Seller met and had received at the
time of their design, manufacture and sale, and products currently designed,
manufactured, sold and leased by Seller meet and have received, all standards
established by relevant standard-setting organizations and all certifications
from all relevant safety and standards testing and certifying organizations, if
any, as were or are, as the case may be, necessary for such products to comply
with all applicable fire, safety and similar codes and regulations.
SECTION 4.29 DEED OF TRUST. Seller has good and marketable title to
the Olive Street Property, free and clear of all liens, claims, security
interests, charges and encumbrances except for (i) real property taxes not
delinquent and (ii) those exceptions to title listed as items 2 through 11 in
Schedule B of the Commitment for Title Insurance, dated May 20, 1998 at 7:30
a.m., issued by First American Title Company of Los Angeles. The Deed of Trust
shall constitute on the Closing Date, a valid first lien and valid first
priority security interest on the Olive Street Property, subject only to
Permitted Encumbrances. The fair market value of the Olive Street Property
exceeds $3,000,000. The Olive Street Property is in the county of Los Angeles.
SECTION 4.30 TAX CLEARANCE. Purchaser has no obligation to withhold any
portion of the Purchase Price for tax purposes.
SECTION 4.31 DISCLOSURE. The information provided by Seller in this
Agreement, including, without limitation, the schedules hereto, the written
information provided to Purchaser in connection with its due diligence review of
Seller, and in any other writing delivered pursuant hereto does not and will not
contain any untrue statement of a fact or, omit to state a fact required to be
stated herein or therein or necessary to make the statements and facts contained
herein or therein, in light of the circumstances under which they are made, not
false or misleading, it being understood by Purchaser that the foregoing shall
not apply to projections, forecasts or predictions made by Seller regarding the
Business. Copies of all documents heretofore or hereafter delivered or made
available by Seller to Purchaser pursuant hereto were or will be complete and
accurate records of such documents.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents and warrants to Seller that:
SECTION 5.1 ORGANIZATION AND CORPORATE AUTHORITY. Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California. Purchaser has all requisite corporate power
and authority to enter into this Agreement and to consummate the Transactions.
This Agreement and all agreements and instruments herein contemplated to be
executed by Purchaser have been duly authorized, executed and delivered by
Purchaser and no other corporate action is required on the part of Purchaser in
order to authorize
29
the execution, delivery and performance of this Agreement. This Agreement and
all agreements and instruments herein contemplated are the valid and binding
agreements of Purchaser, enforceable against Purchaser in accordance with
their respective terms.
SECTION 5.2 NO BREACH; CONSENTS AND APPROVALS. Neither the execution
and delivery of this Agreement or the related agreements and instruments
contemplated hereby nor the consummation of the Transactions will violate,
result in a breach of any of the terms or provisions of, constitute a default
(or any event that, with the giving of notice or the passage of time or both,
would constitute a default) under, result in the acceleration of any
indebtedness under or performance required by, result in any right of
termination of, increase any amounts payable under, decrease any amounts
receivable under, change any other rights pursuant to, or conflict with, any
agreement, indenture or other instrument to which Purchaser is a party or by
which any of its property is bound, its charter documents, or any judgment,
decree, order or award of any court, governmental body or arbitrator (domestic
or foreign) applicable to Purchaser. Subject to Section 8, all consents,
approvals and authorizations of, and declarations, filings and registrations
with, any governmental or regulatory authority (domestic or foreign) or any
other person (either governmental or private) required in connection with the
execution and delivery by Purchaser of this Agreement and the related agreements
and instruments contemplated hereby or the consummation of the Transactions have
been obtained, made and satisfied.
SECTION 5.3 BROKERAGE FEES. No Person is entitled to any brokerage or
finder's fee or other commission from Purchaser in respect of this Agreement or
the Transactions.
SECTION 5.4 SEC DOCUMENTS. Purchaser's Quarterly Report on Form 10-Q,
as amended, for the quarter ended March 31, 1998 complied as to form in all
material respects with the applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the Securities and
Exchange Commission thereunder. Purchaser has not filed a Current Report on
Form 8-K since March 31, 1998 (it being understood by Seller that Purchaser
intends to file a Form 8-K with respect to the Transactions after the Closing).
ARTICLE 6
COVENANTS OF SELLER AND PURCHASER
Seller and Purchaser each covenant with the other as follows:
SECTION 6.1 FURTHER ASSURANCES. Upon the terms and subject to the
conditions contained herein, the parties agree, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, (ii) to execute any documents, instruments or conveyances of any kind
which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing. Without limiting the foregoing, the parties
agree to use their respective reasonable efforts (A) to obtain all
30
necessary waivers, consents and approvals from other parties to the Contracts
and Leases to be assumed by Purchaser; PROVIDED, HOWEVER, that neither
Purchaser nor Seller shall be required to make any payments, commence
litigation or agree to modifications of the terms thereof in order to obtain
any such waivers, consents or approvals, (B) to obtain all necessary Permits
as are required to be obtained under any Regulations, (C) to give all notices
to, and make all registrations and filings with third parties, including
without limitation submissions of information requested by governmental
authorities, and (D) to fulfill all conditions to this Agreement.
SECTION 6.2 NO SOLICITATION.
(a) NO SOLICITATION. From the date hereof through the Closing Date,
neither Seller or its officers, directors or other Representatives will enter
into discussions, provide materials to or solicit interest from other potential
buyers concerning any sale of all or a portion of the Assets or the Business, or
any merger, consolidation, liquidation, dissolution or similar transaction
involving Seller. In the event that Seller accepts any offer other than from
Purchaser during such exclusivity period, Seller will pay to Purchaser $400,000
from its closing proceeds. Seller represents that it is not now engaged in
discussions or negotiations with any party other than Purchaser with respect to
any of the foregoing. Seller agrees not to release any third party from, or
waive any provision of, any confidentiality or standstill agreement to which
Seller is a party.
(b) NOTIFICATION. Seller shall immediately notify Purchaser (orally
and in writing) if any discussions or negotiations are sought to be initiated,
or any proposal is made, or any information is requested with respect to any
proposed transaction described above.
SECTION 6.3 NOTIFICATION OF CERTAIN MATTERS. From the date hereof
through the Closing, Seller and Purchaser shall give prompt notice to the other
of (a) the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty contained in
this Agreement or in any exhibit or schedule hereto to be untrue or inaccurate
in any respect and (b) any failure by it to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement or any exhibit or schedule hereto; PROVIDED, HOWEVER, that such
disclosure shall not be deemed to cure any breach of a representation, warranty,
covenant or agreement or to satisfy any condition.
SECTION 6.4 INVESTIGATION BY PURCHASER. From the date hereof through
the Closing Date Seller shall, and shall cause any and all of its respective
employees and agents to, afford the Representatives of Purchaser and its
Affiliates complete access at all reasonable times to the Assets for the purpose
of inspecting the same (which inspection shall be conducted at an off-site
location mutually agreeable to Seller and Purchaser), and to the employees,
agents, attorneys, accountants, properties, Books and Records and Contracts of
Seller, and shall furnish Purchaser and its Representatives all financial,
operating and other data and information as Purchaser or its Affiliates, through
their respective Representatives, may reasonably request, including unaudited
individual and consolidated balance sheets and the related statements of income,
retained earnings and cash flow for each month from the date of the Balance
Sheet through the Closing Date within twenty (20) calendar days after the end of
each month which financial statements
31
shall (i) be true, correct and complete, (ii) be in accordance with the books
and records of Seller, and (iii) accurately set forth the assets, Liabilities
and financial condition, results of operations and other information
purported to be set forth therein in accordance with generally accepted
accounting principles consistently applied.
SECTION 6.5 CONDUCT OF BUSINESS. From the date hereof through the
Closing, Seller shall, except as contemplated by this Agreement, or as consented
to by Purchaser in writing, operate the Business in the ordinary course of
business and in accordance with past practice and use its best efforts to
preserve intact the Business and its goodwill, and preserve the goodwill and
business relationships with suppliers, distributors, customers and others having
business relationships with Seller, and shall not take any action inconsistent
with this Agreement or with the consummation of the Closing. Without limiting
the generality of the foregoing, with respect to the Business or the Assets,
Seller shall not, except as specifically contemplated by this Agreement or as
consented to by Purchaser in writing:
(a) enter into, extend, modify, terminate or renew any Contract or
Lease, except in the ordinary course of business;
(b) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any of the Assets, or any interests therein,
except in the ordinary course of business, and without limiting the generality
of the foregoing, Seller shall continue to operate the Business consistent with
its past practices;
(c) incur any indebtedness for borrowed money or commitment to borrow
money, other than Financing Obligations, guarantee the obligations of others,
indemnify others or, except in the ordinary course of business, incur any other
Liability;
(d) (i) take any action with respect to the grant of any bonus,
severance or termination pay or with respect to any increase of benefits payable
under Seller's severance or termination pay policies or agreements in effect on
the date hereof or increase in any manner the compensation or fringe benefits of
any employee or pay any benefit not required by any existing Employee Benefit
Plan or policy;
(ii) make any change in the key management structure of Seller,
including without limitation the hiring of additional management personnel or
the termination of existing management personnel;
(iii) adopt, enter into or amend any Employee Benefit Plan,
agreement (including without limitation any collective bargaining or employment
agreement), trust, fund or other arrangement for the benefit or welfare of any
employee, except for any such amendment as may be required or, in Seller's
reasonable determination, desirable to comply with applicable Regulations; or
(iv) fail to maintain all Employee Benefit Plans in accordance
with applicable Regulations in any respect;
32
(e) cause Seller to acquire by merger or consolidation with, or merge
or consolidate with, or purchase all or substantially all of the assets of, or
otherwise acquire any assets or business of any corporation, partnership,
association or other business organization or division thereof;
(f) willingly allow or permit to be done, any act by which any of the
Insurance Policies may be suspended, impaired or canceled;
(g) (A) fail to pay its accounts payable and any debts owed or
obligations due to it, or pay or discharge when due any Liabilities, in the
ordinary course of business; or
(B) fail to collect its accounts receivable in the ordinary
course of business;
(h) fail to maintain the Assets in substantially their current state
of repair, excepting normal wear and tear or fail to replace consistent with
Seller's past practice inoperable, worn-out or obsolete or destroyed Assets;
(i) make any loans or advances on behalf of Seller to any partnership,
firm or corporation, or, except for expenses incurred in the ordinary course of
business, any individual;
(j) make any income tax election or settlement or compromise with tax
authorities on behalf of Seller;
(k) fail to comply with all Regulations applicable to it, the Assets
and the Business;
(l) intentionally do any other act which would cause any
representation or warranty of Seller in this Agreement to be or become untrue in
any respect;
(m) fail to use its best efforts to (i) retain Seller's employees and
(ii) maintain the Business so that such employees will remain available to
Seller on and after the Closing Date, (iii) maintain existing relationships with
suppliers, customers and others having business dealings with Seller and (iv)
otherwise to preserve the goodwill of the Business so that such relationships
and goodwill will be preserved on and after the Closing Date;
(n) enter into any agreement, or otherwise become obligated, to do any
action prohibited hereunder;
(o) make or change any tax election affecting the Assets in the hands
of Purchaser; or
(p) fail to pay, or cause to be paid, when due all Taxes for which
Seller is or may become liable or that are or may become payable with respect to
any taxable period ending on or prior to the Closing Date.
SECTION 6.6 EMPLOYMENT AGREEMENTS.
33
(a) Purchaser shall hire each employee of Seller identified on
Schedule 6.6, subject to Purchaser's Board of Director's right to terminate an
employee for performance-related matters, for a base salary for the employee
thereto as set forth on Schedule 6.6. Purchaser shall not be required to hire
or offer employment to any other employee of Seller not set forth on Schedule
6.6. In the event Purchaser determines to hire such persons, however, all
employees of the Business who become employed by Purchaser as of the Closing (or
upon expiration of an approved leave of absence) are hereinafter referred to
individually as a "Transferred Employee" and collectively as the "Transferred
Employees."
(b Effective as of the Closing (or the date an employee becomes a
Transferred Employee, if later), all Transferred Employees shall cease to
participate in, or accrue benefits under, any of Seller's Plans, and Seller
shall be solely responsible for all of its Plans and all obligations and
liabilities thereunder. Purchaser shall not assume any Plan of Seller or any
obligation or liability thereunder. Seller shall be responsible for (i)
terminating all employees of Seller who are not employed by Purchaser, and
shall be responsible for any and all obligations and liabilities arising in
connection with such terminations, including without limitation, any severance
or other termination pay, retirement and welfare benefits, (ii) providing the
appropriate notices to the employees of the Business pursuant to Section 4980B
of the Code and Part 6 of Title I of ERISA, (iii) all liabilities, including
without limitation, the cost of extended insurance coverage, for any employee of
Seller not actively employed by Seller on the Closing Date until such time, if
ever, that such employee returns to active employment and is employed by
Purchaser.
(c Nothing contained in this Agreement shall confer upon any
Transferred Employee that is not an Employee any right with respect to
continuance of employment by Purchaser, nor shall anything herein interfere
with the right of Purchaser to terminate the employment of any (i)
Transferred Employee that is not an Employee at any time, with or without
cause, and (ii) any Transferred Employee that is an Employee, at any time,
with cause, or restrict Purchaser in the exercise of its independent business
judgment in modifying any of the terms and conditions of the employment of
the Transferred Employees that are not Partners after the Closing Date.
(d No provision of this Agreement shall create any third party
beneficiary rights in any Transferred Employee, any beneficiary or dependents
thereof, or any collective bargaining representative thereof, with respect to
the compensation, terms and conditions of employment and benefits that may be
provided to any Transferred Employee by Purchaser or under any benefit plan
which Purchaser may maintain.
(e Prior to and until Closing, each employee of Seller, shall receive
his or her salary and hospitalization, medical, surgical, dental, life insurance
and any other welfare and benefits plans and programs, comparable to what such
employee of Seller is receiving as of the date of this Agreement.
SECTION 6.7 LEASES. At the Closing, the Hollywood Lease and Olive
Lease between Purchaser and Seller shall be executed and delivered to Purchaser
and Seller.
SECTION 6.8 COLLECTION OF ACCOUNTS RECEIVABLE AND LETTERS OF CREDIT.
At the
34
Closing, Purchaser shall acquire hereunder, and thereafter Purchaser or its
designee shall have the right and authority to collect for Purchaser's or its
designee's account, all Accounts Receivable, letters of credit and other
items which constitute a part of the Assets, and Seller shall within 48 hours
after receipt of any payment in respect of any of the foregoing, properly
endorse and deliver to Purchaser any letters of credit, documents, cash or
checks received on account of or otherwise relating to any such receivables,
letters of credit or other items related to Seller or the Business. Seller
shall promptly transfer or deliver to Purchaser or its designee any cash or
other property that Seller may receive in respect of any deposit, prepaid
expense, claim, contract, license, lease, commitment, sales order, purchase
order, letter of credit or receivable of any character, or any other item,
constituting a part of the Assets.
SECTION 6.9 BOOKS AND RECORDS; TAX MATTERS.
(a BOOKS AND RECORDS. Purchaser shall retain all Books and Records
in the possession of Purchaser after the Closing Date relating to the operation
of the Business prior to the Closing in accordance with all applicable records
retention Regulations, including without limitation, all Environment Laws and
occupational health and safety laws and regulations. Each party agrees that it
shall cooperate with and make available to the other party, during normal
business hours, all Books and Records, information and employees (without
substantial disruption of employment) retained and remaining in existence after
the Closing which are necessary or useful in connection with any tax,
environmental or occupational health and safety inquiry, audit, investigation or
dispute, any litigation or investigation or any other matter requiring any such
Books and Records, information or employees for any reasonable business purpose.
The party requesting any such Books and Records, information or employees shall
bear all of the out-of-pocket costs and expenses (including without limitation
attorneys' fees) reasonably incurred in connection with providing such Books and
Records, information or employees. All information received pursuant to this
Section 6.9(a) shall be treated as confidential and not disclosed to any person
or entity other than the Representatives of Seller or Purchaser, as the case may
be, who need to know such information in connection with the proceedings
contemplated by this Section 6.9(a).
(b COOPERATION AND RECORDS RETENTION. Seller and Purchaser shall (i)
each provide the other with such assistance as may reasonably be requested by
any of them in connection with the preparation of any return, audit, or other
examination by any taxing authority or judicial or administrative proceedings
relating to Liability for Taxes, (ii) each retain and provide the other with any
records or other information that may be relevant to such return, audit or
examination, proceeding or determination, and (iii) each provide the other with
any final determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any tax return of
the other for any period. Without limiting the generality of the foregoing,
Purchaser and Seller shall retain, until the applicable statutes of limitations
(including any extensions) have expired, copies of all tax returns, supporting
work schedules, and other records or information that may be relevant to such
returns for all tax periods or portions thereof ending on or before the Closing
Date and shall not destroy or otherwise dispose of any such records without
first providing the other party with a reasonable opportunity to review and copy
the same.
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SECTION 6.10 BULK SALES. It may not be practicable to comply or
attempt to comply with the procedures of the "Bulk Sales Act" or similar law
of any or all of the states in which the Assets are situated or of any other
state which may be asserted to be applicable to the transactions contemplated
hereby. Accordingly, to induce Purchaser to waive any requirements for
compliance with any or all of such laws, Seller hereby agrees that the
indemnity provisions of Section 10.2 hereof shall apply to any Damages of
Purchaser or any institution providing financing to Purchaser arising out of
or resulting from the failure of Seller or Purchaser to comply with any such
laws.
SECTION 6.11 CONFIDENTIALITY. The terms of the Confidentiality
Agreement between Seller and Purchaser dated December 19, 1997 shall be
extended to, and shall remain in full force and effect during the period
between the date hereof and the Closing Date, unless earlier terminated.
SECTION 6.12 CONTRACTS TO BE ASSIGNED. To the extent that any of the
contracts or agreements which (i) are to be assigned to Purchaser pursuant to
this Agreement or (ii) constitute an Assumed Liability, are not assignable
without the consent of a third party, which contracts or agreements Seller
represents are limited to those contracts or agreements identified on
Schedule 4.4 hereto, Seller shall use its best efforts to obtain the consent
of the other such party to the assignment to Purchaser. If any required
consent is not obtained before the Closing and the Closing is consummated,
Seller agrees to use its best efforts to obtain all such required consents
and to enforce, on behalf of Purchaser, the rights of Seller under any such
non-assigned contracts or agreements. Seller further agrees to cooperate
with Purchaser after such date in any reasonable arrangement (such as, but
not limited to, sub-contracting, sub-licensing or sub-leasing) designed to
ensure for Purchaser, on terms no less favorable than contemplated hereby,
all of the economic benefits (after reflecting the related reasonable and
necessary costs) under the applicable contracts without causing any such
breach or right of termination. Sellers shall remain liable for the
performance of all duties and obligations relating to any contract or
agreement not properly assigned hereunder.
ARTICLE 7
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to consummate the transactions provided for
hereby are subject, in the discretion of Seller, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions, any of which
may be waived by Seller by written notice to Purchaser:
SECTION 7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of Purchaser contained in this Agreement shall
be true and correct in all material respects at and as of the date of this
Agreement and at and as of the Closing Date, except as and to the extent that
the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms hereof,
and Purchaser shall have performed and satisfied in all material respects all
agreements and covenants required
36
hereby to be performed by it prior to or on the Closing Date.
SECTION 7.2 NO ACTIONS OR COURT ORDERS. No Action by any
governmental authority or other person shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby and which could reasonably be expected to damage Seller
materially if the transactions contemplated hereby are consummated. There
shall not be any Regulation or Court Order that makes the purchase and sale
of the Business or the Assets contemplated hereby illegal or otherwise
prohibited.
SECTION 7.3 ASSUMPTION DOCUMENT. Purchaser shall have executed the
Assumption Document.
SECTION 7.4 ANCILLARY AGREEMENTS. Purchaser shall have executed and
delivered the Ancillary Agreements to which it is a party.
SECTION 7.5 CERTIFICATES. Purchaser shall furnish Seller with such
certificates to evidence compliance with the conditions set forth in this
Article VII as may be requested by Seller.
ARTICLE 8
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser to consummate the transactions provided
for hereby are subject, in the discretion of Purchaser, to the satisfaction,
on or prior to the Closing Date, of each of the following conditions, any of
which may be waived by Purchaser by written notice to Seller:
SECTION 8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of Seller contained in this Agreement shall be
true and correct in all respects at and as of the date of this Agreement and
at and as of the Closing Date, except as and to the extent that the facts and
conditions upon which such representations and warranties are based are
expressly required or permitted to be changed by the terms hereof, and Seller
shall have performed and satisfied all agreements and covenants required
hereby to be performed by it prior to or on the Closing Date.
SECTION 8.2 CONSENTS; REGULATORY COMPLIANCE AND APPROVAL. Any
necessary consents to the assignment of all Contracts and Leases shall have
been obtained, as well as the consents identified on Schedule 4.4 hereof.
All Permits, consents, approvals and waivers from governmental authorities
necessary to the consummation of the transactions contemplated hereby by
Purchaser shall have been obtained. Purchaser shall be satisfied that all
approvals required under any Regulations to carry out the transactions
contemplated by this Agreement shall have been obtained and that the parties
shall have complied with all Regulations applicable to such transactions.
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SECTION 8.3 NO ACTIONS OR COURT ORDERS. No Action by any
governmental authority or other person shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby and which could reasonably be expected to damage
Purchaser, the Assets or the Business materially if the transactions
contemplated hereby are consummated, including without limitation any
material adverse effect on the right or ability of Purchaser to own, operate,
possess or transfer the Assets after the Closing. There shall not be any
Regulation or Court Order that makes the purchase and sale of the Business or
the Assets contemplated hereby illegal or otherwise prohibited.
SECTION 8.4 OPINION OF COUNSEL. Seller shall have delivered to
Purchaser an opinion of McDermott, Will & Emery, counsel to Seller, dated as
of the Closing Date, in form and substance reasonably satisfactory to
Purchaser, to the effect that:
(a Seller is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of California;
(b Seller has the necessary corporate authority to enter into this
Agreement and the Ancillary Agreements to which it is a party and to
consummate the transactions contemplated hereby and thereby;
(c The execution, delivery and performance of this Agreement and
the Ancillary Agreements by Seller has been duly authorized, and this
Agreement and each of the Ancillary Agreements to which it is a party
constitute legally valid and binding obligations of Seller, enforceable
against Seller, in accordance with their terms, except as limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally or by equitable principles (whether
considered in an action at law or in equity) and (ii) limitations imposed by
federal or state law or equitable principles upon the availability of
specific performance, injunctive relief or other equitable remedies;
(d The documents to be delivered by Seller at the Closing to
effect the transfer and assignment to Purchaser of all right, title and
interest in and to the Assets are effective to do so.
(e The Deed of Trust creates a lien upon the fee estate of the
Olive Street Property in favor of the trustee named therein for the benefit
of Purchaser. The Deed of Trust creates a perfected security interest in
favor of Purchaser in any fixtures situated on the Olive Street Property and
described therein and in any personal property collateral described therein.
SECTION 8.5 CERTIFICATES. Seller shall furnish Purchaser with such
certificates to evidence compliance with the conditions set forth in this
Article VIII as may be reasonably requested by Purchaser.
SECTION 8.6 MATERIAL CHANGES. As of the Closing Date, since January
31, 1998, there shall not have been any actual or threatened adverse change
in the Business or the Assets or the liabilities, earnings, results of
operations, condition (financial or otherwise) or prospects of Seller.
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SECTION 8.7 CONVEYANCING DOCUMENTS; RELEASE OF ENCUMBRANCES. Seller
shall have executed and delivered each of the documents described in Section
3.2 hereof so as to effect the transfer and assignment to Purchaser of all
right, title and interest in and to the Assets, and Seller shall have filed
(where necessary) and delivered to Purchaser the Deed of Trust and all
documents necessary to release the Assets from all Encumbrances, which
documents shall be in a form reasonably satisfactory to Purchaser's counsel.
SECTION 8.8 OTHER AGREEMENTS. Seller shall have executed and
delivered the Ancillary Agreements in the forms attached as exhibits hereto.
SECTION 8.9 NONFOREIGN AFFIDAVIT. Seller shall furnish Purchaser
with an affidavit, stating, under penalty of perjury, such Seller's United
States taxpayer identification number and that Seller is not a foreign
person, pursuant to Section 1445(b)(2) of the Code.
SECTION 8.10 CUSTOMER RELATIONS. Purchaser shall be satisfied with
the business relationship of Seller with any customer named in Section
4.16(a)(i) of the Disclosure Schedule.
SECTION 8.11 DUE DILIGENCE.
Purchaser shall be satisfied, in its sole discretion, with the results of its
due diligence investigation.
SECTION 8.12 FINANCING. Purchaser shall have obtained an amendment
to its existing line of credit with Union Bank of California sufficient to
provide Purchaser with the Cash Portion.
SECTION 8.13 TITLE POLICY. First American Title Insurance Company
("Title Company") shall be ready, willing and able to issue at the Closing to
Purchaser the Title Policy insuring that the Deed of Trust constitutes a
first priority lien in favor of Purchaser against the Olive Street Property
and listing therein no exclusions or exceptions to title other than those
that have been reasonably approved by Purchaser in writing ("Permitted
Encumbrances");
SECTION 8.14 AGREEMENT WITH ERNST & YOUNG LLP. Purchaser shall have
entered into an agreement with Ernst & Young LLP, the Seller's independent
auditors, with respect an audit of the Business suitable for inclusion in a
Current Report on Form 8-K, including the delivery of any consents needed
from such firm related to such audit.
ARTICLE 9
RISK OF LOSS
SECTION 9.1 RISK OF LOSS. From the date hereof through and
including the Closing Date, all risk of loss or damage to the Assets shall be
borne by Seller, and thereafter shall be borne by Purchaser. If any portion
of the Assets is destroyed or damaged by fire or any other cause on or prior
to the Closing Date, other than use, wear or loss in the ordinary course of
business, Seller shall give written notice to Purchaser as soon as
practicable after, but in any
39
event within five (5) calendar days of, discovery of such damage or
destruction, which notice shall set forth in detail the nature of such damage
or destruction, the amount of insurance, if any, covering such Assets and the
amount, if any, which Seller is otherwise entitled to receive as a
consequence. Prior to the Closing, in the event of damage or destruction of
any Assets, Purchaser shall have the option, which shall be exercised by
written notice to Seller within ten (10) calendar days after receipt of
Seller's notice or if there is not ten (10) calendar days prior to the
Closing Date, as soon as practicable prior to the Closing Date, of (a)
accepting such Assets in their destroyed or damaged condition in which event
Purchaser shall be entitled to the proceeds of any insurance or other
proceeds payable with respect to such loss and the Purchase Price shall be
reduced by the amount, if any, mutually agreed upon between the parties, (b)
excluding such Assets from this Agreement, in which event the Purchase Price
shall be reduced by the amount allocated to such Assets, as mutually agreed
between the parties or (c) terminating this Agreement in accordance with
Section 11.1. If Purchaser accepts such Assets, then after the Closing, any
insurance or other proceeds shall belong, and shall be assigned to, Purchaser
without any reduction in the Purchase Price; otherwise, such insurance
proceeds shall belong to Seller.
ARTICLE 10
INDEMNIFICATION
SECTION 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF SELLER.
The representations and warranties made by Seller and Purchaser in this
Agreement and any document, schedule, exhibit (other than the Hollywood Lease
and the Olive Lease) or other instrument relating hereto shall survive the
Closing Date for a period of two years, except that (a) with respect to
taxation matters, such period shall be the longer of (i) two years and (ii)
the applicable statute of limitations and (b)with respect to representations
and warranties made in the Hollywood Lease or the Olive Lease, such period
shall be the term of such lease. Notwithstanding anything contained in this
Agreement, including, without limitation, this Section 10.1, any claims with
respect to representations and warranties made in this Agreement or in any
document or other instrument relating hereto shall survive and continue
following the expiration of the survival periods stated above (i) if such
claim is submitted in writing to the Indemnifying Party (as defined below)
prior to the end of the survival periods stated in this Section 10.1 and
identified as a claim for indemnification pursuant to this Agreement or (ii)
if such claim is based upon fraud or willful breach or misrepresentation by
Seller. In either event, such claims shall survive indefinitely. The right
to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected
by any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation.
SECTION 10.2 INDEMNIFICATION BY SELLER. Seller shall indemnify and
hold harmless Purchaser and each of Purchaser's Affiliates, directors,
officers, employees, attorneys, agents and Representatives (collectively, the
"Affiliated Parties") in respect of any and all claims, losses, damages,
liabilities, penalties, interest, costs and expenses, including, without
limitation,
40
reasonable attorneys', accountants' and consultants' fees and other expenses
(collectively, "Damages"), incurred by Purchaser or Purchaser's Affiliated
Parties, together with interest on cash disbursements in connection
therewith, at an annual rate equal to the Prime Rate then in effect, from the
date such cash disbursements were made by Purchaser or any of their
respective Affiliated Parties until paid by Seller, in connection with, or
resulting from, any or all of the following:
(a Any failure to perform or comply with any covenant, agreement
or obligation of Seller contained in this Agreement or any document or other
instrument contemplated by this Agreement;
(b The Barsotti Action or the Compact Storage Action;
(c Any injury to persons or death or property damage resulting
from or contributed to by any products designed, manufactured, sold or leased
by Seller or any services performed by Seller if the accident, incident or
occurrence giving rise to such claim, action, lawsuit or proceeding occurred
prior to the Closing Date;
(d Failure to obtain any consent, waiver, release or approval
specified on Schedule 4.4 hereto;
(e Liabilities of the Seller resulting from events occurring
before or on the Closing Date, other than a liability or obligation which is
included in the Assumed Liabilities; and
(f Any claim arising out of the failure of Seller to comply with
the bulk transfer or bulk sales laws of any jurisdiction in accordance with
Section 6.11;
provided, however, that Seller's obligations set forth in this Section shall
not apply to any Damages that arise from or are related to any willful
misconduct or gross negligence by Purchaser and provided, further, that in no
event shall Seller be required to pay Damages (including Damages payable
under the Secured Indemnity Agreement) in excess of $8,000,000.
No claim, demand, suit or cause of action shall be brought against
Seller under this Section 10.2 unless and until the aggregate amount of
Damages exceeds $130,000, but then Seller shall be required to pay the full
amount of such Damages; PROVIDED, HOWEVER, that this limitation shall not
apply to any breach of any of the Seller's representations and warranties of
which Seller had knowledge at any time prior to the date on which such
representation and warranty is made or any intentional breach by Seller of
any covenant or obligation.
Seller acknowledges and agrees that the foregoing indemnification
obligation of Seller shall be an unsecured obligation of seller (and a
personal liability thereof), independent of those certain indemnification
obligations set forth in the Secured Indemnity Agreement.
SECTION 10.3 INDEMNIFICATION BY SELLER FOR ENVIRONMENTAL MATTERS. For a
period of two (2) years, in addition to, and not by way of limitation on, the
indemnities set forth in Sec-
41
tion 10.2, Seller shall indemnify and hold harmless Purchaser and Purchaser's
Affiliated Parties in respect of any and all claims, losses, damages,
liabilities, declines in value of the Assets or the Business, penalties,
interest, costs and expenses (including, without limitation, reasonable
attorneys', accountants', and consultants' fees and other expenses) incurred
by Purchaser or Purchaser's Affiliated Parties, together with interest on
cash disbursements in connection therewith, at an annual rate equal to the
Prime Rate then in effect, from the date such cash disbursements were made by
Purchaser or any of Purchaser's Affiliated Parties until paid by Seller, in
connection with, or resulting from, any Environmental Liabilities for
Pre-Closing Matters including, without limitation, any of the matters
described on Schedule 4.12, regardless of the diligence performed or
investigation made by Purchaser or its Representatives with respect thereto.
SECTION 10.4 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify
and hold harmless Seller in respect of any and all Damages reasonably
incurred by Seller, together with interest on cash disbursements in
connection therewith, at an annual rate equal to the Prime Rate then in
effect, from the date that such cash disbursements were made by Seller until
paid by Purchaser, in connection with, or resulting from, any or all of the
following:
(a Any breach of any representation or warranty made by Purchaser
in Article V of this Agreement or in any document or other instrument
relating hereto;
(b Any misrepresentation contained in any written statement or
certificate furnished by Purchaser to Seller pursuant to this Agreement or
the Transactions;
(c Any failure to perform or comply with any covenant, agreement
or obligation of Purchaser contained in this Agreement or any document or
other instrument contemplated by this Agreement; and
(d) Liabilities of the Business (to parties other than Seller or
the shareholders or other affiliates of Seller) arising in relation to the
Business, the Assets or the Assumed Liabilities (except as provided in
Section 6.12 hereof) resulting from events occurring after the Closing Date;
provided, however, that Purchaser's obligations set forth in this Section
shall not apply to any Damages that arise from or are related to any willful
misconduct or gross negligence by Seller and provided further that in no
event shall Purchaser be required to pay Damages in excess of $8,000,000.
No claim, demand, suit or cause of action shall be brought against
Purchaser under this Section 10.5 unless and until the aggregate amount of
Damages exceeds $130,000, but then Purchaser shall be required to pay the
full amount of such Damages; provided, however, that this limitation shall
not apply to any breach of any of the Purchaser's representations and
warranties of which Purchaser had knowledge at any time prior to the date on
which such representation and warranty is made or any intentional breach by
Purchaser of any covenant or obligation.
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SECTION 10.5 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall
arise for indemnification under this Agreement, the party entitled to
indemnification (the "Indemnified Party") shall promptly notify the party
obligated to provide indemnification (the "Indemnifying Party") of the claim
and, when known, the facts constituting the basis for such claim; provided,
however, that the failure to so notify the Indemnifying Party shall not
relieve the Indemnifying Party of its obligation hereunder to the extent such
failure does not materially prejudice the Indemnifying Party. In the event
of any claim for indemnification hereunder resulting from or in connection
with any claim or legal proceedings by a third party, the notice to the
Indemnifying Party shall specify, if known, the amount or an estimate of the
amount of the liability arising therefrom.
SECTION 10.6 DEFENSE OF CLAIMS. In connection with any claim giving
rise to indemnity under this Agreement resulting from or arising out of any
claim or legal proceeding by a person who is not a party to this Agreement,
the Indemnifying Party at its sole cost and expense and with counsel
reasonably satisfactory to the Indemnified Party may, upon written notice to
the Indemnified Party, assume the defense of any such claim or legal
proceeding if (a) the Indemnifying Party acknowledges to the Indemnified
Party in writing, within fifteen (15) days after receipt of notice from the
Indemnified Party, its obligations to indemnify the Indemnified Party with
respect to all elements of such claim based upon the facts then reasonably
known to such Indemnifying Party, (b) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to defend
against such third-party claims and fulfill its indemnification obligations
hereunder, (c) the third-party claim involves only money damages and does not
seek an injunction or other equitable relief, and (d) settlement or an
adverse judgment of the third-party claim is not, in the good faith judgment
of the Indemnified Party, likely to establish a pattern or practice adverse
to the continuing business interests of the Indemnified Party. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense;
PROVIDED, HOWEVER, that if there are one or more legal defenses available to
the Indemnified Party that conflict with those available to the Indemnifying
Party, or if the Indemnifying Party fails to take reasonable steps necessary
to defend diligently the claim after receiving notice from the Indemnified
Party that it believes the Indemnifying Party has failed to do so, the
Indemnified Party may assume the defense of such claim; PROVIDED, FURTHER,
that the Indemnified Party may not settle such claim without the prior
written consent of the Indemnifying Party, which consent may not be
unreasonably withheld. If the Indemnified Party assumes the defense of the
claim, the Indemnifying Party shall reimburse the Indemnified Party for the
reasonable fees and expenses of counsel retained by the Indemnified Party and
the Indemnifying Party shall be entitled to participate in (but not control)
the defense of such claim, with its counsel and at its own expense. If the
Indemnifying Party thereafter seeks to question the manner in which the
Indemnified Party defended such third party claim or the amount or nature of
any such settlement, the Indemnifying Party shall have the burden to prove by
a preponderance of the evidence that the Indemnified Party did not defend or
settle such third party claim in a reasonably prudent manner. The parties
agree to render, without compensation, to each other such assistance as they
may reasonably require of each other in order to insure the proper and
adequate defense of any action, suit or proceeding, whether or not subject to
indemnification hereunder. If the indemnification provided for in this
Article X is for
43
any reason unenforceable, the party against whom indemnification was sought
agrees to contribute to the claims for which such indemnification is
unenforceable in such proportion as is appropriate to reflect the relative
fault of such party, on the one hand, and the Indemnified Party, on the other
hand, as well as any other relevant equitable considerations.
SECTION 10.7 MANNER OF INDEMNIFICATION. All indemnification payments
hereunder shall be effected by payment of cash or delivery of a certified or
official bank check in the amount of the indemnification liability.
SECTION 10.8 DEED OF TRUST. Seller's payment obligations under the
Secured Indemnity Agreement shall be secured by the Deed of Trust. The Deed
of Trust shall not secure any of Seller's other obligations under this
Agreement. The Deed of Trust shall create a first priority lien in favor of
Purchaser against the Olive Street Property. Purchaser's lien under the Deed
of Trust shall be insured by an ALTA Lender's Title Insurance Policy issued
by First American Title Insurance Company ("Title Company") in the amount of
$3,000,000 ("Title Policy"). The cost of the Title Policy shall be paid by
Seller. Purchaser shall re-convey the Deed of Trust upon the occurrence, and
subject to the terms and conditions, set forth in Section 19 of the Deed of
Trust.
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ARTICLE 11
MISCELLANEOUS
SECTION 11.1 TERMINATION.
(a TERMINATION. This Agreement may be terminated at any time prior
to Closing:
(i0 By mutual written consent of Purchaser and Seller;
(ii0 By Purchaser or Seller if the Closing shall not have
occurred on or before June __, 1998; PROVIDED, HOWEVER, that this provision
shall not be available to Purchaser if Seller has the right to terminate this
Agreement under clause (iv) of this Section 11.1, and this provision shall
not be available to Seller if Purchaser has the right to terminate this
Agreement under clause (iii) of this Section 11.1;
(iii0 By Purchaser if there is a breach of any representation
or warranty set forth in Article IV hereof or any covenant or agreement to be
complied with or performed by Seller pursuant to the terms of this Agreement
or the failure of a condition set forth in Article VII to be satisfied (and
such condition is not waived in writing by Purchaser) on or prior to the
Closing Date, or the occurrence of any event which results or would result in
the failure of a condition set forth in Article VIII to be satisfied on or
prior to the Closing Date, PROVIDED that, Purchaser may not terminate this
Agreement prior to the Closing Date if Seller has not had an adequate
opportunity (in any event, not to exceed ten (10) calendar days) to cure such
failure;
(iv0 By Seller if there is a material breach of any
representation or warranty set forth in Article V hereof or of any covenant
or agreement to be complied with or performed by Purchaser pursuant to the
terms of this Agreement or the failure of a condition set forth in Article
VII to be satisfied (and such condition is not waived in writing by Seller)
on or prior to the Closing Date, or the occurrence of any event which results
or would result in the failure of a condition set forth in Article VIII to be
satisfied on or prior to the Closing Date, PROVIDED that, Seller may not
terminate this Agreement prior to the Closing Date if Purchaser has not had
an adequate opportunity (in any event, not to exceed ten (10) calendar days)
to cure such failure.
(b IN THE EVENT OF TERMINATION. In the event of termination of this
Agreement:
(i0 Each party shall redeliver all documents, work papers
and other material of any other party relating to the transactions
contemplated hereby, whether so obtained before or after the execution
hereof, to the party furnishing the same (and shall destroy all copies in
their possession); and
(ii0 No party hereto shall have any Liability to any other
party to this Agreement, except as stated in subsections (i) and (ii) of this
Section 11.1(b) and Seller's obligations under Section 6.2, except for any
willful breach of this Agreement occurring prior to
45
the termination of this Agreement.
SECTION 11.2 NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by facsimile transmission (with subsequent letter
confirmation by mail) or three days after being mailed by certified or
registered mail, postage prepaid, return receipt requested, to the parties,
their successors in interest or their assignees at the following addresses,
or at such other addresses as the parties may designate by written notice in
the manner aforesaid:
If to Purchaser: VDI Media
6920 Sunset Boulevard
Los Angeles, California 90028
Telecopy: (213) 957-2164
Attention: Donald R. Stine
With a concurrent copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP
1999 Avenue of the Stars, Suite 1600
Los Angeles, California 90067
Telecopy: (310) 788-1200
Attention: Barry L. Dastin, Esq.
Brian Hoye, Esq.
If to Seller: All Post, Inc.
c/o McDermott, Will & Emery
1301 Dove Street, Suite 500
Newport Beach, California 92660
Telecopy: (714) 851-9348
Attention: All Post, Inc.
With a concurrent copy to: McDermott, Will & Emery
1301 Dove Street, Suite 500
Newport Beach, California 92660
Telecopy: (714) 851-9348
Attention: John B. Miles, Esq.
With a concurrent copy to: Westar Capital
949 South Coast Drive, Suite 650
Costa Mesa, California 92626
Attention: Robert Polenz.
SECTION 11.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement
shall not be assignable by any of the parties. This Agreement shall inure to
the benefit of and be binding upon the parties and their respective permitted
successors and assigns.
46
SECTION 11.4 GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of
California.
SECTION 11.5 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
SECTION 11.6 COMPLETE AGREEMENT. This Agreement, the Secured
Indemnity Agreement, the Confidentiality Agreement, the exhibits and
schedules hereto and the documents delivered or to be delivered pursuant to
this Agreement contain or will contain the entire agreement among the parties
with respect to the Transactions and shall supersede all previous oral and
written and all contemporaneous oral negotiations, commitments and
understandings.
SECTION 11.7 MODIFICATIONS, AMENDMENTS AND WAIVERS. This Agreement
may be modified, amended or otherwise supplemented only by a writing signed
by Purchaser and Seller. No waiver of any right or power hereunder shall be
deemed effective unless and until a writing waiving such right or power is
executed by the party waiving such right or power.
SECTION 11.8 EXPENSES. Except as otherwise expressly provided
elsewhere in this Agreement, each party shall pay all fees and expenses
incurred by it in connection with the transactions contemplated by this
Agreement.
SECTION 11.9 INVALIDITY. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, then to the maximum extent permitted by law,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement or any other such instrument.
SECTION 11.10 PUBLICITY. Neither Purchaser, on the one hand, nor
Seller, including Representatives or Affiliates thereof, on the other hand,
shall issue any press release or make any public statement regarding the
transactions contemplated hereby, without the prior written approval of the
other parties, except as may be required by law but only after prior written
notice to the other party; provided that Purchaser shall be entitled to issue
a press release regarding the Transactions upon execution of this Agreement.
SECTION 11.11 LIMIT ON INTEREST. Notwithstanding anything in this
Agreement to the contrary, no party shall be obligated to pay interest at a
rate higher than the maximum rate permitted by applicable law. In the event
that at any time an interest rate provided in this Agreement exceeds the
maximum rate permitted by applicable law, such interest rate shall be deemed
to be reduced to such maximum permissible rate.
SECTION 11.12 ATTORNEYS' FEES AND COSTS. Each party shall bear its
own expenses arising from the preparation, negotiation and delivery of this
Agreement and any other document required to be delivered in connection
herewith.
47
SECTION 11.13 JURISDICTION; SERVICE OF PROCESS. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement may be brought against any of the parties in the
courts of the State of California, County of Los Angeles, and the parties
hereto irrevocably submit to the jurisdiction of such courts and waive any
objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in
the world.
SECTION 11.14 CONTRACT INTERPRETATION; CONSTRUCTION OF AGREEMENT.
(a The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement. Article, section, exhibit, schedule, preamble, recital
and party references are to this Agreement unless otherwise stated. The
words "include", "includes" and "including" shall be deemed to be followed by
the phrase "without limitation".
(b No party, nor its respective counsel, shall be deemed the
drafter of this Agreement for purposes of construing the provisions of this
Agreement, and all language in all parts of this Agreement shall be construed
in accordance with its fair meaning, and not strictly for or against any
party.
(c Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.
48
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first above written.
ALL POST, INC., as Seller
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
VDI MEDIA, as Purchaser
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
49
AGREEMENT NOT TO COMPETE
Reference is made to that certain Asset Purchase Agreement between VDI
Media, a California corporation, and All Post, Inc., a California
corporation, dated as of June __, 1998 (the "Agreement"). Capitalized terms
used herein without definition shall have the respective meanings set forth
therefor in the Agreement. As additional consideration for the payments made
or to be made by Purchaser under the Agreement, from the Closing Date to and
including the second anniversary thereof Seller hereby agrees that it shall
not, for any reason, directly or indirectly, engage or be interested in any
business that Competes with Purchaser, and shall not, directly or indirectly,
have any interest in, own, manage, operate, control, be connected with as a
stockholder (other than as a stockholder of less than five percent (5%) of
the issued and outstanding stock of a publicly-held corporation), joint
venturer, officer, partner, employee or consultant, or otherwise engage or
invest or participate in, any business that Competes with Purchaser. As used
herein, the term "Competes with Purchaser" shall mean competing with the
Business conducted by Seller at any time during the three year period
preceding the date hereof in any county or any other political subdivision of
any state of the United States of America or any of its possessions or
territories where Seller conducted such businesses at any time during the
three year period preceding the Closing Date. All of the parties agree that
the duration and area for which the covenant not to compete set forth in this
Agreement Not To Compete is to be effective are reasonable. In the event
that any court determines that the time period or the geographical areas
provided for herein, or both of them, are unreasonable and that such covenant
is to that extent unenforceable, such covenant shall remain in full force and
effect for the greatest time period and in the greatest geographical area
that would not render it unenforceable. The parties intend that this
covenant shall be deemed to be a series of separate covenants, one for each
and every county of each and every state of the United States of America and
for any other territory or possession of the United States of America where
this covenant is intended to be effective.
Notwithstanding the foregoing, the Cinetech Business shall be deemed
not to Compete with Purchaser for the purposes of this Agreement Not To
Compete.
The parties agree that damages would be an inadequate remedy for
Purchaser in the event of a breach or threatened breach of this Agreement Not
to Compete and thus, in any such event, Purchaser may, either with or without
pursuing any potential damage remedies and in addition to such remedies,
immediately obtain and enforce an injunction, and/or a temporary restraining
order, prohibiting any party from violating this Agreement, without having to
prove actual damages or post bond.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first above written.
ALL POST, INC.
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
VDI MEDIA
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title: